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Should Investors Buy Into Sheng Siong’s Growth Plans?

Sheng Siong Group Ltd (SGX: OV8) is one of the largest supermarket chains in Singapore, with 54 outlets across the island taking up a total retail area of 496,000 square feet. The group’s outlets are primarily located in the HDB heartland areas and provide a wide assortment of live, fresh, and chilled produce as well as toiletries and household goods at reasonable prices.

The group released its first-quarter 2019 (Q1 2019) earnings in late April, and revenue and net profit showed decent growth of 10.1% and 6% year on year, respectively. The group has plans for expanding its store network within Singapore and is also embarking on a slow entry into China. Should investors buy into management’s growth plans? Let’s take a deeper look at what these plans entail.

Extending the group’s reach in Singapore

The group has secured three new HDB shops and will be opening three new Sheng Siong stores this month. They are at Bukit Batok Block 292, Anchorvale Road Block 351, and Sumang Lane Block 231. The floor areas of the stores are 4,850 square feet, 5,400 square feet, and 5,530 square feet, respectively. These stores were part of a batch of six stores released by the Housing Development Board (HDB) in a re-tendering exercise.

Sheng Siong intends to further open new stores and reach deeper into Singapore’s heartlands. However, the group will bid “rationally,” meaning it will do its best not to overpay even if the location seems ideal.

Building Sheng Siong’s brand in China

Sheng Siong opened its first overseas store in Kunming, China in Q4 of 2017. The venture has been positioned as a trial, and the group could lose US$6 million if it does not turn out to be successful. The argument is that the Chinese grocery industry is still dominated by mainly wet markets and neighbourhood convenience stores, and Sheng Siong is trying to position itself as a better alternative while also offering fresh produce. This initial store was 60% owned by Sheng Siong, 30% owned by its local partner Kunming Luchen Group, and the remaining 10% by Xpress Holdings Ltd, now renamed A-Smart Holdings Ltd.

In late January 2019, Sheng Siong announced it had secured a second location in Kunming to open a second outlet in China comprising 26,640 square feet of retail space. The investment amount was not stated, and the store is expected to be operational before the end of Q2 2019.

Bright prospects for Sheng Siong

It appears that Sheng Siong is taking a two-pronged approach to growth, bolstering its local presence by securing more heartland sites, as well as taking a measured approach to expanding in China. The group has a recognisable brand name among HDB dwellers, and their prices are competitive compared to NTUC Fairprice (run by NTUC Co-Operative) and lower than that of Cold Storage, one of the brands run by Dairy Farm International Holdings Ltd.

It should be heartening to investors to learn that Sheng Siong is opening its second outlet in Kunming soon, slightly more than one year after its maiden outlet started operations in China. There appears to still be room for growth for the group both locally and overseas, and investors should pay close attention to the numbers and corporate strategies over the next few quarters.

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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned. The Motley Fool Singapore has recommended shares of Dairy Farm International Holdings Ltd and Sheng Siong Group Ltd.