Background: Established in 1985, Sheng Siong has built a distinct brand name in the local grocery retail scene, having bagged the ‘SuperBrand’ title for the past 4 years. Its supermarkets are known for their affordable pricing, targeting mainly at the lower income mass market. Currently, it has 23 stores that located mainly in the HDB heartlands with a total floor area of 340,000 sq ft.
Recent development: Priced at 33 cents apiece, the IPO was approximately 1.3x over-subscribed. Despite general weak market conditions, the stock has had a strong run up, touching a high of $0.575 on active trading after its debut on SGX last month.
Key ratios…
Price-to-earnings: 15.3x
Price-to-NTA: 5.4x
Dividend per share / yield: n.a
Net cash/(debt) per share: S$0.079
Net cash as % of mkt cap: 16.3%
Share price (S$) S$0.485
Issued shares (m) 1341.50
Market cap (S$ m) 650.63
Free float (%) 15.0%
Recent fundraising activities Aug 2011: IPO comprising 201.5m new shares @ $0.33
Financial YE 31 December
Major shareholders SS Holdings (35.7%); Lim Hock Eng (12.7%)
YTD change 47.0%
52 week px range S$0.310 - S$0.575
Our view
Attracted strong anchor investors. The IPO raised net proceeds of about S$62.6m, of which 47.9% will be used to repay its term loan, 31.9% for the expansion of the Group’s grocery retail business and the reminder for working capital purposes. The offer has attracted prominent anchor investors such as JF Asset Management, Prudential Asset Management, FIL Investment Management, VPL Funds and Kenrich Partners.
Top three local grocery retailers. The group is Singapore’s third largest grocery retailer after NTUC Fairprice and Dairy Farm. To further expand its network, Sheng Siong recently announced that it had entered a lease agreement to secure premises for a new store in Woodlands Park. We understand the lease agreement is for a period of three years from 1 October 2011, with two consecutive options to renew for additional periods of three years each.
Recession-proof business. Perhaps the biggest investment merit for Sheng Siong is that it is operating in a relatively stable business with strong cash flow generation amidst a potential economic slowdown. While the group has no formal policy, it intends to distribute up to 90% of its net profit to shareholders for the FY11/12.
Appears fairly priced for now. Sheng Siong is trading at 19.7x core FY10 (fully diluted) PER but still a discount to its closest peer, Dairy Farm of about 24x. At current level, we estimate the stock offers a prospective dividend yield of almost 5%.
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