Sheng Siong v Dairy Farm! Fight Of The Supermarkets!

Supermarkets are making amazing sales now with people running to supermarkets and hoarding goods, but which supermarket stock is the best deal right now ?

There are 4 common supermarkets in Singapore:

  • Cold Storage
  • Giant
  • Sheng Siong
  • NTUC Fairprice

Of these supermarkets, only Dairy Farm (SGX:D01), which owns Cold Storage and Giant, and Sheng Siong (SGX:OV8) are listed on the Singapore Stock Exchange (SGX). Since NTUC isn’t listed, I won’t be including them into the comparison.

Brief Introduction

Dairy Farm has various businesses, in many countries. They not only own supermarket chains like Cold Storage and Giant, but they also own convenience stores (e.g. 7-Eleven) and beauty shops (e.g. Guardian).

Sheng Siong is our beloved day to day supermarket we go to. Their stores are always located near our homes like at HDB void-decks and such. Their prices are slightly cheaper than some of its competitors like Cold Storage.

Earning Power

(FY2019 v FY2018)Sales / RevenueGross Profit MarginNet Profit After TaxEarnings Per Share (Basic)
Dairy FarmUS$ 1.19b
(-4.7% y-o-y)
31.6%
(+1.77% y-o-y)
US$ 325m
(+381.48% y-o-y)
US¢ 23.93
(+281.66% y-o-y)
Sheng SiongSGD$ 991m
(+11.26% y-o-y)
26.9%
(+0.37% y-o-y)
SGD$ 75.7m
(+7.42% y-o-y)
SGD¢ 5.04
(+7.01% y-o-y)
From Dairy Farm and Sheng Siong‘s Annual Report

Verdict : Dairy Farm Wins(?)

So yeah Dairy Farm’s performance seems a lot better than Sheng Siong but that is only on the surface. If we look back at Dairy Farm’s AR, we’ll come to find out that the “Profit attributable to shareholders” has been declining since 2015, from US$424.4m to US$323.8m. Their underlying EPS has also been declining from US¢31.66 to US¢23.72.

It is also good to note that Dairy Farm’s associates and joint ventures have been churning higher amounts of profit from US$17.9b in 2015 to US$27.7b in 2019.

Ratios

(FY2019 v FY2018 )Current RatioQuick Ratio
Dairy Farm0.361
(-1.1% y-o-y)
0.288
(+2.13% y-o-y)
Sheng Siong0.959
(-20.7% y-o-y)
0.861
(-22.4% y-o-y)
From Dairy Farm and Sheng Siong‘s Annual Report

Verdict : Sheng Siong Wins

Yes Sheng Siong’s ratios did fall about 20% as compared to the year before, but the fall in liquidity is due to the acquisitions made during the year. Towards the end of the year, Sheng Siong made an announcement to purchase Block 118 Aljunied Avenue 2, for an aggregate consideration of S$29,500,000. Due to this acquisition, the net cash position fell and therefore causing a drop in the liquidity ratios.

Though the decrease, Sheng Siong’s ratios are much closer to 1 than Dairy Farm, which signifies that its financial health is much stronger. I am very certain once the store opens up at the new location, profits will soon be able to cover the cost of acquisition.

Current Valuation v Historical Avg

(FY2019 v FY2018 )P/ENet Asset ValuePrice/BookDividendPayout RatioDividend Yield
Dairy Farm @ US$ 4.9320.6US¢ 89.39
(+7.35% y-o-y)
5.515US¢ 21
(No change)
87.8%4.26%
Historical Average27.127.282.83%
Sheng Siong @ SGD$ 1.3326.4SGD¢ 21
(+8.25% y-o-y)
6.33SGD¢ 3.55
(+4.41% y-o-y)
70.4%2.67%
Historical Average22.75.653.27%
From Dairy Farm and Sheng Siong‘s Annual Report

Verdict : Dairy Farm Wins

Dairy Farm’s current valuation is very attractive as compared to its historical averages while Sheng Siong is actually considered overvalued when compared to its historical averages.

Growth Prospects

Verdict : Tie

Sheng Siong has been actively trying to expand the number of stores they currently have open, even opening stores in China.

Dairy Farm on the other hand is actively building up their associates and other business sectors, like its “Health and Beauty” sector as well as its “Home Furnishings” sector, expanding their operations all around ASIA, in countries like Taiwan, Hong Kong, Indonesia, etc.

Both companies are actively growing their business operations so I give both sides a point !

Final Conclusion

Verdict : Dairy Farm is the Better Pick

Based on the comparisons made above, Dairy Farm does appear to be more attractive at its current valuation, but I do have some concerns with its liquidity. Having current and quick ratios being so low, it could be an issue for the company when they have to pay off their debts.

Despite the liquidity issues, Dairy Farm is on a big sale right now, and it even pays a stable 4.26% dividend yield while you sit back and reap the capital gains.

Currently I do not own any positions in either companies but I will look to pick up Dairy Farm when it dips.

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