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What Investors Should Know About Sheng Siong Group Ltd’s 2018 Strategy And Outlook

Sheng Siong Group Ltd (SGX: OV8) is one of the largest supermarket chains in Singapore. The company’s network of 48 stores are primarily located in the heartlands of our island nation. The company was established in 1985 and listed in 2011.

The company recently published its 2017 annual report. Given that reading an annual report is one of the best ways to keep up with a company’s developments, I decided to go through Sheng Siong’s latest annual report to understand the company’s prospects, and how it had performed in 2017.

Generally, when reading an annual report, I will pay close attention to the letter to shareholders that the company’s chairman and/or CEO writes. In this article, I will discuss an area that I found interesting: management’s thoughts on the strategy and outlook of its business.

To begin with, Sheng Siong’s management thinks that consumer sentiment in Singapore is improving and is hopeful that the improvement on the back of better economic prospects in 2018 would continue, although management is also aware that there are risks. Here’s what the company’s management said:

“Consumer sentiment is gradually improving and retail sales showed signs of recovery but the risks of it sliding back because of uneven economic prospects worldwide and trade tariffs, remained. While Singapore’s economy grew by 3.6% in 2017, which was higher than the 2.4% growth in 2016, retail sales at supermarkets was sluggish for the first half of 2017.

However, the Group is hopeful that the recovery in retail sales which began in the second half of 2017 on the back of better economic prospects and improving households’ net worth because of recovery in asset prices would continue.

Management then went on to explain Sheng Siong’s strategy for 2018. The first thread of the company’s growth strategy is to continue to open new stores in Singapore. Here’s what management shared:

“The Group will continue with their efforts in expanding the network of outlets in Singapore, especially in areas where the Group’s potential customers reside but there is no Sheng Siong store. The competition for retail space is likely to remain keen and the search for suitable retail outlets particularly for HDB shops in existing HDB estates might be challenging.

 The store expansion plans are on track and another four new HDB shops were secured at Block 417 Fernvale Street (5,600 square feet), Block 338 Anchorvale Crescent (5,200 square feet), Block 105 Canberra Street (11,300 square feet) and ITE Ang Mo Kio (10,000 square feet) in 1Q2018.”

The major re-fitting of some old stores is another part of Sheng Siong’s strategy. Management explained:

“Some of the old stores in matured housing estates have seen declining same store sales and the Group will be earmarking some of these stores for major re-fitting, which could mean a month or so of lost sales for each of the affected stores.”

Last but not least, there is the extension of Sheng Siong’s distribution centre. Management said:

“Construction of the new extension to the Mandai distribution centre which will be linked to the existing warehouse has commenced and is estimated to be completed before the end of 2018, adding approximately another 97,000 square feet of storage space.”

From the quotes above, Sheng Siong has a clear plan to grow: Increase its existing store count, refit certain old stores, and expand its Mandai distribution centre.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned. The Motley Fool Singapore has a recommendation on Sheng Siong Group.