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Foolish Face-Off: Dairy Farm International Holdings Ltd Versus Sheng Siong Group Ltd

There are more than 700 companies listed on the stock exchange in Singapore. Of these, there are a number that have similar business operations. It is sometimes difficult to determine which is the better company in a particular industry.

In this article, I will make some quick-and-dirty comparisons between two bricks-and-mortar retailers, Dairy Farm International Holdings Ltd (SGX: D01) and Sheng Siong Group Ltd (SGX: OV8), to determine which might give you more bang for your investment buck.

Introducing the contenders

Dairy Farm is a pan-Asian retail group with more than 6,500 outlets (including associates and joint ventures) across 12 Asian countries and territories. It operates supermarkets, hypermarkets, convenience stores, health and beauty stores, and home furnishing stores under brands such as Giant, Cold Storage, Jasons MarketPlace, 7-Eleven, Guardian, and IKEA. The company also has an interest in the Hong Kong-based restaurant operator, Maxim’s.

Meanwhile, Sheng Siong started with just one store in Singapore in 1985, which was located at Ang Mo Kio. Since then, it has grown into a large supermarket chain in Singapore with 43 outlets located all over the island. To support its retail operations, in May 2011, it constructed a new corporate headquarters and warehousing and distribution centre at Mandai Link.

The table below shows the market capitalisation (as of 13 December 2017) and revenue for the two firms. Do note that all figures quoted in the tables that follow are for the year ended 31 December 2016 (FY2016) for both companies, unless otherwise stated.

Round 1: Profitability

In the first round, I am analysing the profitability of the companies in terms of their profit margins and returns on equity (ROE). The ROE reveals how efficient management is in turning every dollar of shareholders’ capital into profits.

For every dollar of revenue generated by Dairy Farm, the company turned about four cents into profit. But for Sheng Siong, each dollar of revenue became nearly eight cents in profit. This shows that Sheng Siong is more profitable than Dairy Farm. However, Dairy Farm has a higher gross margin and ROE than Sheng Siong.

Winner: Dairy Farm

Round 2: Growth

In the second round, I am comparing the compound annual growth rate (CAGR) for the two companies’ revenues, net profits, and dividends, over the past five years. Businesses that can grow their sales and profits steadily over time should also see their share prices rise.

Sheng Siong has trounced Dairy Farm in all aspects.

Winner: Sheng Siong

Round 3: Valuation

As Foolish investors, it is essential to focus on the value of a business and not on the daily changes in a company’s stock price.

We will now compare the price-to-earnings (PE) ratio, price-to-sales (PS) ratio, and dividend yield of the two companies. The values below are as of their closing prices on 11 December 2017.

Sheng Siong has a slightly lower PE ratio and a much higher dividend yield than Dairy Farm. But, Dairy Farm is cheaper in terms of the PS ratio.

Winner: Sheng Siong

The Foolish Bottom Line

The final score is 2-1 to Sheng Siong, as it triumphed over Dairy Farm with faster historical growth and a lower valuation.

However, we have yet to look at other important aspects of the companies, such as their balance sheet strength, ability to generate free cash flow, future growth prospects, and more. Potential investors interested in the two companies should conduct deeper research before investing money. Who knows, Dairy Farm may have better growth prospects than Sheng Siong due to its wider geographical reach and more diversified retail operations.

This Foolish Face-Off serves as a useful starting point and helps take some heavy-lifting off your back. If you are keen to find out more about how other businesses in the same industries stack up against each other, do stay-tuned for more Foolish Face-Offs.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Dairy Farm International Holdings Ltd. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.