The document analyzes Sheng Siong Group as an investment opportunity. It provides three scenarios for the company's performance and finds that the base case scenario would yield a 30.1% return on investment, higher than a 9.3% return from an A-grade bond. The analysis also shows Sheng Siong has higher profitability and return on equity than Dairy Farm International based on financial metrics. Overall the document recommends buying shares in Sheng Siong Group.

1. Sheng Siong Group
SSG SP / SHEN.SI
Investment Analysis
SOOMBA
SMU MBA PT Class of ‘14 (Group C) | Shi Shi AW, Brian HALIM, Lester LEE, Hung Sheng LEE, Alvin J. LIN

2. 市超13.3% 9.3%
CHOOSE YOUR SCENARIO
SOOMBA
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昇 菘43.3% 30.1%

3. Number of
Outlets by
FY15
Net Income by
FY15
Projected
Dividend
Pay-out
Projected
Share Price
at exit
Capital Gain
Projected
ROI
[S$ ‘000] [S$ ‘000] [S$] [S$ ‘000] %
Best Case Scenario 42 46,400 512 0.87 1,651.7 43.3
Base Case Scenario 38 42,000 485 0.79 1,018.2 30.1
Worst Case Scenario 33 36,400 439 0.68 226.3 13.3
INVESTMENT ANALYSIS - Base case vs. A-Grade Bond (9.3% ROI) SOOMBA
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4. INVESTMENT ANALYSIS - Base case vs. A-Grade Bond (9.3% ROI)
BASE CASE SCENARIO FY13 FY14 FY15
Stores Opened 2 2 1
Total Stores 35 37 38
Total Est. Retail Sq. Ft. (Net) 424,242 448,485 460,606
Revenue per retail outlet 21.0 22.0 23.0
Revenue 735.0 814.0 874.0
Net Income 35.3 39.1 42.0
Common Dividends Paid (S$) (31.8) (35.2) (21.0)
Pay-out Ratio 90.0% 90.0% 50.0%
Earnings per Share (S$) 0.0255 0.0282 0.0303
Dividends per Share (S$) 0.0229 0.0254 0.0152
Dividend Yield 4.1% 3.8% 1.9%
Share Price (S$) 0.56 0.68 0.79
PE Ratio 22.0 24.0 26.0
Investment Return Total
Total investment (S$M) 5,000,000
Purchase Price (S$) 0.655
Number of shares purchased 7,633,588
Dividend Pay-out (S$) 484,944
Share Price at exit (S$) 0.79
Investment Value at exit (S$) 6,018,163
Capital Gain (S$) 1,018,163
Total Gain (S$) 1,503,107
Projected ROI 30.1%
SOOMBA
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5. Sheng Siong Group 2010 2011 2012
Gross Profit Margin 21.76% 22.10% 22.10%
EBIT Margin 6.12% 5.91% 6.12%
Net Profit Margin 6.78% 4.71% 6.54%
Dairy Farm Int’l 2010 2011 2012
Gross Profit Margin 29.8% 29.4% 28.9%
EBIT Margin 5.1% 5.3% 4.6%
Net Profit Margin 5.2% 5.3% 4.6%
DuPont Analysis
Profitability
(Net Income / Sales)
Operating Efficiency (Sales
/ Total Assets)
Financial Leverage
(Total Assets / Equity)
ROE
Sheng Siong Group 6.5% 2.6 1.6 27.0%
Dairy Farm Int’l 4.3% 2.7 3.1 36.0%
FINANCIAL PERFORMANCE -vs. Dairy Farm Int’l SOOMBA
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6. FYE 31st Dec (S$ m) 2010 2011 2012ASSETS
Selected
assets
Cash And Equivalents 85.9 122.1 120.4
Short Term Investments 2.1 3.2 2.5
Trading Asset Securities - - -
Accounts Receivable 1.3 2.1 2.0
Other Receivables 0.4 0.9 1.0
Notes Receivable 0.1 - -
Total Assets 175.3 241.2 241.7
LIABILITIES
Current
Accounts Payable 48.4 52.8 57.3
Accrued Exp. 21.4 19.5 13.3
Short-term Borrowings 8.8 - -
Curr. Port. of LT Debt 3.2 - -
Curr. Port. of Cap. Leases - - -
Curr. Income Taxes Payable 7.1 8.4 8.7
Other Current Liabilities 22.8 11.1 9.1
Total Current Liabilities 111.8 91.8 88.4
Non-
current
Long-Term Debt 19.1 - -
Def. Tax Liability, Non-Curr. 0.6 1.1 1.6
Other Non-Current Liabilities - - -
Total Liabilities 131.5 92.9 90.0
FINANCIAL HEALTH -Balance sheet analysis SOOMBA
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7. 2010 2011
% change from
2010 to 2011
2012
% change from
2011 t0 2012
Days Sales In Receivable
[Collection Period]
1.00 1.08 8% 1.17 9%
Days Sales In Inventory
[Resident Period]
19.05 25.45 34% 28.09 10%
Days Payable Outstanding
[Payment Period]
36.99 40.95 11% 40.46 -1%
Cash Conversion Cycle (16.95) (14.42) -15% (11.19) -22%
FINANCIAL HEALTH -Operating efficiency SOOMBA
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8. 2010
(S$ m)
% change from
2009 to 2010
2011
(S$ m)
% change from
2010 to 2011
2012
(S$ m)
% change from
2011 to 2012
Cash Flow from Operations 34.0 36.5% 24.9 (26.7%) 33.8 35.7%
Capital Expenditure (38.4) 140% (23.6) 38.5% (12.2) 48.3%
Free Cash Flow (FCF) (4.4) N.M. 1.3 N.M. 21.6 1561%
Dividends Paid (41.2) N.M. - N.M. (38.3) N.M.
Net Free Cash Flow (45.6) N.M. 1.3 N.M. (16.7) N.M.
2010
(S$ m)
% change from
2009 to 2010
2011
(S$ m)
% change from
2010 to 2011
2012
(S$ m)
% change from
2011 to 2012
Dividend Pay-out Ratio 96.7% N.M - N.M. 91.8% N.M.
Dividend Pay-out / FCF - N.M. - N.M. 177.3% N.M.
FCF / CFO - N.M. 5.2% N.M. 60.5% 1063%
Cash Realisation Ratio
(CFO / Net Profit)
79.8% 12.1% 91.2% 14.2% 81.1% -11.1%
FINANCIAL HEALTH -Cash flow SOOMBA
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9. MACRO ENVIRONMENT
Population factors
Geographic factors
Economic factors
INDUSTRY OUTLOOK
Consumer demand
Unique business positioning
Competition
BUSINESS FUNDAMENTALS SOOMBA
STRATEGIC ADVANTAGE
Perceived
uniqueness
Low cost
position
STRATEGICTARGET
Industry-wideSpecificsegments
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10. PROSPECTS
New stores in Singapore
Overseas ventures
E-commerce
Net profit enhancement
BUSINESS FUNDAMENTALS SOOMBA
RISKS
Competition
Leasing & Labour costs
Shift in consumer behaviours
Sustaining dividend pay-out
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11. BUY
SOOMBA
Sheng Siong Group
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