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1 Singapore Stock to Buy If There’s Another Circuit Breaker
May 17, 2021
Singapore is in the midst of another Covid-19 outbreak as increased safe management measures have been implemented as of Sunday 16 May.
Thankfully, a second “circuit breaker” (similar to the one implemented in April of 2020) hasn’t been announced – yet.
As long-term investors, we saw last year that great businesses (out of tech) that could still operate, and even thrive, during the outbreak were a rare commodity.
In that sense, local supermarket chain Sheng Siong Group (SGX: OV8) has been a standout performer over the past year or so.
If we do indeed head into a second circuit breaker in Singapore, Sheng Siong stock could be one stock to hold in order to provide some much-needed reliability in any portfolio. Here’s why.
Not surviving but thriving
Although many businesses were hit extremely hard by Covid-19, it was unsurprising to see Sheng Siong thrive in this environment.
The majority of its supermarkets are located in the heartland and its founder and CEO Lim Hock Chee has been a steady guiding hand at the company he founded back in 1985.
Compared to peers such as Dairy Farm Holdings (SGX: D01), which owns the Cold Storage and Giant supermarket chains, Sheng Siong’s pricing is attractive given it offers and has stores located close to a large portion of the population.
Last year turned out to be a bumper year for Sheng Siong as it rose to the occasion after Singapore went into its circuit breaker in April of 2020.
Reporting its 2020 full-year earnings in late February, Sheng Siong saw its revenue for the year rise 40% year-on-year versus 2019 to S$1.39 billion. It’s a figure that has also grown steadily over the years (see below).
Source: Sheng Siong investor relations
Meanwhile, Sheng Siong’s net profit nearly doubled to S$139.1 million, driven in part by lower operating costs.
The company also raised its full-year dividend per share (DPS) by over 80% year-on-year in 2020 to 6.5 Singapore cents. With its current price of S$1.65, shares are yielding a very respectable 4%.
Doing more with less
One of the biggest bright spots in 2020 for Sheng Siong was its same store sales growth (SSSG), a common metric for consumer stocks of how much growth current stores are generating, which soared 29% year-on-year.
What’s more, Sheng Siong also has opportunity to grow further in the years ahead as it still occupies a small market share of the overall grocery market in Singapore. It’s still the third-largest operator behind both Dairy Farm and NTUC Fairprice.
Furthermore, the chain is looking to expand further in HDBs, with the completion of many residential and commercial units being put on hold due to the pandemic.
Management for the long term
Finally, one of the great things about Sheng Siong has been the foresight and attitude of management. I personally like to see great companies recognising the role their staff plays and it has been a prime example of sharing profits with its people.
It was widely-known that Sheng Siong paid its staff up to 16 months’ bonus (in some cases) to acknowledge the role they played in helping operations run smoothly last year.
As a well-managed and respected homegrown Singapore brand, Sheng Siong should continue to thrive in the Covid-19 era and beyond.
Disclaimer: ProsperUs Head of Content Tim Phillips doesn’t own shares of any companies mentioned.
Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.
He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.
In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.