Can Supermarket Operator Sheng Siong Grow its Dividends and Share Price?

During times of uncertainty, it’s good to stick with familiar names with a proven track record.

Sheng Siong Group Ltd (SGX: OV8) is one such name.

The supermarket chain has a total of 66 outlets in Singapore, located close to the heartland HDB estates.

It’s not just its stock that investors are familiar with, Sheng Siong is a staple among regular grocery shoppers..

The group sells a wide assortment of products including live and chilled produce, food products, general merchandise and essential household items.

The retailer also offers more than 1,500 products under its 23 house brands.

Investors may not realise it, but Sheng Siong has more than tripled its dividend per share from S$0.0177 in 2011 to S$0.062 in 2021.

The group’s share price has also steadily risen, from S$0.47 a decade ago to S$1.58, up nearly four-fold.

While these are impressive feats, investors may be curious to know if Sheng Siong can continue to grow both its dividends and share price.

We dig deeper to find out.

Growing its store footprint

You may be unaware that Sheng Siong has been steadily increasing its presence in Singapore.

Back in 2011, the group started with just 25 outlets around the island.

Since then, its number of stores has steadily increased to the current 66 as of 30 June 2022 (1H2022), more than doubling slightly over a decade later.

Meanwhile, its total retail area has also shot up from 348,000 square feet back in end-2011 to 597,000 square feet in 1H2022.

The increase in the number of stores and floor area is a key reason why Sheng Siong managed to grow its revenue and net profit.

Revenue increased from S$578.4 million in 2011 to S$1.37 billion in 2021 while net profit more than quadrupled from S$27.3 million to S$132.8 million over the same period.

The good news is that there could be more growth in the future.

The construction of HDB projects is now back on track this year as Singapore reopens its economy.

On this note, the group opened one new store in December last year and two new stores in 1H2022 and looks on track to bid for more HDB spaces to open more outlets.

There’s a good chance that Sheng Siong can continue to open more outlets in 2023 and beyond, thereby increasing its footprint even further and boosting its top line.

Improving its gross margins

Aside from opening more outlets, Sheng Siong has also improved its gross margin over the years.

By doing so, it has helped the retailer to chalk up a higher net profit per dollar of sales.

Back in 2011, its gross margin stood at 22.1%.

By 2021, it had risen significantly to 28.7% and for 1H2022, the gross margin had improved further to 29.4%.

There are several reasons for this increase.

Sheng Siong benefits from an uplift in gross margin by curating its sales mix towards more house brand products that enjoy higher gross margins.

Over the years, more sales have come from these house brands, thereby boosting the group’s gross margin.

This favourable sales mix can continue to deliver gross margin improvements for Sheng Siong if it adds a wider selection of products to its house brands and promotes them to customers.

Another reason for the better margins is better sourcing methods where Sheng Siong enjoys discounts on bulk purchases, allowing it to purchase more cheaply.

The group also expanded its warehouse capacity back in 2017 and tapped on its distribution centres to lower its overall cost of goods.

Moving forward, Sheng Siong has plans to continue improving its sales mix and also to increase the selection and type of house brand products, so there is a good chance that gross and net margins can continue to climb.

Tapping on digital trends

In the internet age, management understands that it is not enough for the group to have a physical presence.

Hence, back in July, Sheng Siong listed all its house brand products on the mobile application Price Kaki, being the first supermarket chain to do so.

More than 950 items including daily essentials such as rice, cooking oil, and household cleaning products were listed.

The retailer has also increased the Senior Citizen Discount from 3% to 4% to increase patronage.

By doing this, Sheng Siong has cast its net wider to potential customers who may not live near any of its outlets.

Get Smart: A resilient business with a bright outlook

Sheng Siong has proven itself to be resilient even during tough times and has a great track record of growing its revenue, net profit and dividends.

With the economy reopening, the group can likely snag new HDB units to open new stores, thereby increasing its top line.

And with its continuous focus on curating its sales mix, there is also a good chance that Sheng Siong can improve its gross and net margins.

Therefore, investors should feel confident that the retailer can carry on growing its profits and dividends.

And as the business grows, the share price should naturally follow.

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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.

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