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Better Buy: Dairy Farm International Holdings Ltd vs. Sheng Siong Group Ltd

There are two major listed supermarket stocks in Singapore, namely Dairy Farm International Holdings Ltd (SGX: D01) and Sheng Siong Group Ltd (SGX: OV8).

The former is a conglomerate that operates brands like GuardianCold StorageGiant Hypermarket, and 7-Eleven while the latter focuses mainly on Sheng Siong-branded stores.

For investors who are looking to invest in this industry, they might want to know which of the two supermarkets they should consider now. Unfortunately, there is no easy answer. As such, I’d like to put both companies side by side in order to get a direct comparison.

Financial performance

To start with, we want to know which company has done better financially recently. I’ll start with Dairy Farm.

For the first half ended 30 June 2019, Dairy Farm reported that sales fell by 3% from a year ago to US$5.8 billion. Profit attributable to shareholders was flat year-on-year. Yet, excluding non-trading activities, underlying profit attributable to shareholders was up by 5% year-on-year to US$177 million. As a result, underlying basic earnings per share improved 5% year-on-year to 13.05 cents.

Overall, it was a mixed performance for Dairy Farm.

And now let’s look at Sheng Siong’s performance. For the same period, Sheng Siong reported that sales grew by 11% from a year ago to S$490 million. Similarly, gross profit was up 11% year-on-year to S$131 million. As a result, net profit attributable to shareholders came in stronger by 7% year-on-year to S$38 million. The improvement in performance was driven mainly by new stores.

In sum, it was a solid performance for Sheng Siong with stronger metrics across the board.

Winner: Sheng Siong Group Ltd

Valuation

The next thing I’ll consider here is the valuation of both companies. The three valuation metrics I will focus on are the price-to-book (PB) ratio, price-to-earnings (PE) ratio, and dividend yield.

To begin with, Dairy Farm and Sheng Siong have PB ratios of 8.8 and 5.8, respectively. The low PB ratio for Sheng Siong suggests that it has a lower valuation based on its PB ratio.

Next, Dairy Farm and Sheng Siong have PE ratios of 102.1 and 23.7, respectively. Again, Sheng Siong appears to have a lower valuation based on its low PE ratio.

Last but not least, the respective dividend yield for Dairy Farm and Sheng Siong are 3.0% and 3.0%. The higher a stock’s yield is, the lower is its valuation. In this case, we can see that both Dairy Farm and Sheng Siong have the same yield.

Winner: Sheng Siong Group Ltd

Conclusion

In all, Sheng Siong emerges as the better buy given its solid financial performance and relatively lower valuation.

Last but not least, investors are reminded that the information presented here is by no means a recommendation to take any action on the stocks mentioned. Instead, it should be viewed only as a useful starting point for further research.

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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 recommended the shares of Dairy Farm International Holdings Ltd and Sheng Siong Group Ltd.