The COVID-19 pandemic in 2020 caused widespread panic and uncertainty globally. In Singapore, as in many other parts of the world, this led to panic buying, where consumers rushed to supermarkets to stock up on essential items.
Everyday products such as milk, eggs, cleaning products, and toilet paper were particularly in high demand and often disappeared from shelves quickly. This phenomenon highlighted the important role that supermarkets play in our daily lives. Extending beyond just places to buy food, supermarkets are critical infrastructure that ensures access to daily necessities.
Singapore’s supermarket landscape is dominated by three major players: NTUC FairPrice, and two SGX-listed supermarket chains, DFI Retail Group Holdings Ltd (SGX: D01) and Sheng Siong Group Ltd (SGX: OV8).
Between these three major players and a few smaller chains, there are a total of 672 supermarkets operating in Singapore. This high number indicates a thriving and robust supermarket industry that caters to the diverse needs of the Singaporean population.
Sheng Siong Group (SGX: OV8)
Homegrown supermarket chain, Sheng Siong, has 71 outlets located across mainly residential heartlands in Singapore.
These outlets provide both “wet and dry” shopping sections. Customers can find a wide range of live, fresh and chilled produce to general dry goods such as essential household products.
In 2017, Sheng Siong expanded internationally by opening its first store in Kunming, China. Since then, the supermarket chain has grown to five stores in the city.
Over the past five years, Sheng Siong’s revenue has seen impressive growth, climbing from S$991.3 million in 2019 to S$1.37 billion in 2023. This translates to an annualised growth rate of 8.4% – showcasing the groups strong operational performance and rising popularity.
Source: Sheng Siong 2023 Annual Report
Depicted in the chart above, the pandemic in 2020 significantly boosted Sheng Siong’s revenue – pushing it past the S$1.3 billion mark and sustaining it above that level since.
This revenue surge did not come at the expense of rising costs either. From 2019 to 2023, Sheng Siong’s gross profit consistently increased from S$266.9 million to S$410.5 million, with its gross profit margin improving from 26.9% to 30.0% over the same period.
Sheng Siong achieved this strategically reducing purchase prices, securing higher rebates and volume discounts from suppliers, enhancing efficiency through its central distribution centre, and increasing the proportion of fresh products sold compared to non-fresh products.
As revenue and gross profit climbed, net profit also saw healthy growth. In 2019, Sheng Siong reported a net profit of S$75.8 million, which soared to S$134.0 million by 2023.
Source: Sheng Siong 2023 Annual Report
Higher net profit typically means higher dividends, and Sheng Siong has delighted shareholders by boosting dividends over the last five years. Dividends rose from 3.55 Singapore cents per share in 2019 to 6.25 Singapore cents per share in 2023 – marking an impressive annualised increase of 15.2%.
Source: Sheng Siong 2023 Annual Report
In its latest business update, Sheng Siong said:
“The Group opened two new stores in FY2023, and one new store in 1Q 2024, and is expecting the announcement on the results of four tenders that closed in February 2024. In early April, we expanded the retail floor space of one of our stores by connecting the newly leased space at Blk 159 Bukit Batok to our existing store at Blk 154 Bukit Batok. The supply pipeline of HDB housing is strong. It is expected that HDB will be putting up another six stores for tender in the next six months. The Group remains proactive in seeking new store opportunities, particularly in areas where it currently lacks a presence. In China, plans are underway to open the 6th store in 2Q FY2024.”
Sheng Siong shares recently traded at S$1.49 each, offering a price-to-earnings (P/E) ratio of 16x and a dividend yield of 4.2%.
DFI Retail Group (SGX: D01)
DFI Retail is a leading pan-Asian retail group with nearly 11,000 outlets, including associates and joint ventures, across 13 Asian countries and territories. It operates a diverse range of stores, including supermarkets, hypermarkets, convenience stores, health and beauty stores, and home furnishings stores under various brands.
In Singapore, DFI retail owns popular supermarket brands such as Cold Storage and Giant. Other well-known brands under DFI Retail’s umbrella in Singapore include 7-Eleven and Guardian.
Source: DFI Retail 2023 Annual Report
DFI Retail’s revenue has fluctuated over the years. In 2023, the group reported revenue from subsidiaries of US$9.17 billion – a dip from the US$11.39 billion revenue in 2019. With that, underlying net profit has fall to US$154.7 million in 2023, from US320.9 million in 2019.
Likewise, dividends per share decreased from 21.0 US cents to 8.0 US cents over the same time period.
Despite these challenges, DFI achieved a substantial turnaround in 2023. Underlying profit surged 437% year-on-year – driven by a strong recovery in its Health and Beauty and Convenience divisions
As a result, dividends increased significantly by 167% to 8.0 US cents in 2023, from 3.0 US cents in 2022.
Here’s a snapshot of DFI Retail’s financials from 2019 to 2023:
Source: DFI Retail 2023 Annual Report
In August 2023, Scott Price took over as new chief executive of DFI Retail. Since taking the helm, he has introduced a fresh framework to propel the group forward. His approach focuses on being customer-first, people-led, and shareholder-driven – which he believes is crucial to support the supermarket giant’s growth trajectory over the next three to five years.
Source: DFI Retail FY2023 Earnings Presentation
DFI also plans to return cash to shareholders through special dividends and buybacks as part of its capital allocation strategy. Under new leadership and with a renewed charge, shareholders can stay tuned to see how DFI Retail’s turnaround unfolds in the coming years.
With a share price of US$1.89, DFI Retail currently trades at a P/E ratio of 79x and offers a dividend yield of 4.3%.
The post Supermarket Stocks: Investing In Sheng Siong (SGX: OV8) And DFI Retail (SGX: D01) appeared first on DollarsAndSense.sg.
