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Regular sector winner Sheng Siong tops again; Wilmar tops PAT category

The Edge Singapore
The Edge Singapore12/11/2020 07:00 AM GMT+08  • 4 min read
Regular sector winner Sheng Siong tops again; Wilmar tops PAT category
Sheng Siong Group, a regular big winner at every year’s Billion Dollar Club, features prominently again.
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Sheng Siong Group, a regular big winner at every year’s Billion Dollar Club, features prominently again. Within the food & beverages; food and drug retailing sector, the supermarket chain has been named overall sector winner and is top in returns to shareholder and weighted return on equity.

Wilmar International’s win as the company with the best growth in profit after tax helped prevent a clean sweep by Sheng Siong within this industry sector. Sheng Siong was founded by the Lim brothers Hock Eng, Hock Chee and Hock Leng back in 1985. They were pig farmers before they ventured into the retailing. Right from the start, the company’s strategy was clear: its focus is to offer mass market and economical products at outlets within the heartland housing estates. In contrast, other branded supermarket chains or upmarket grocers focused on prime locations such as the malls within the city centre, or the big heartland malls, where rental can be as high as prime Orchard Road shopping belt levels.

From a small provision shop at Ang Mo Kio where the Lims started this business, Sheng Siong has since expanded into 64 outlets across the country covering a total floor area of 575,150 sf. More than three decades on, the company is still operating the original outlet.

Sheng Siong has also built up a portfolio of 18 housebrands, with a total of more than 1,200 different items, ranging food products to paper goods and developed with a key focus on safety, quality, health and nutrition, and offering value for money.

This strategy has clearly served Sheng Siong well. During the evaluation period, Sheng Siong managed a weighted shareholder return of 18.6%, as well as a weighted return on equity of 25.46 times. Its ESG score of 14.1 places it somewhere in the middle of the companies scored.

The bulk of Sheng Siong’s business is in Singapore but it has ventured overseas as well. Specifically, it has a joint venture with the Kunming LuChen Group Co to operate supermarkets in China. The first overseas outlet, spanning some 50,000 sf, was opened in China’s Kunming city in November 2017, and in June 2019, a second store has been opened in the same city.

Earlier this year, Sheng Siong found itself an unexpected beneficiary of the Covid-19 pandemic as many consumers stocked up groceries and household goods during the “circuit breaker” period. For 2Q ended June 30, Sheng Siong reported earnings increased 150.7% to $46.2 million. However, in 3Q ended Sept 30, earnings growth momentum has moderated, rising just 54.4% to $31.8 million from a year ago as lockdown measures eased and panic-buying behaviour dissipated.

Meanwhile, Wilmar International came out tops in the profit after tax growth category within this industrial sector. The company is known for its palm oil plantations but it has a very sizeable downstream refining and processing business too. For one, its Arawana brand of edible oil is a market leader in China. In October, Wilmar spun off its China-based subsidiary Yihai Kerry Arawana (YKA) for a separate listing on China’s Shenzhen Stock Exchange ChiNext Board, raising around US$2 billion, out of which Wilmar will distribute a portion to its shareholders as a special dividend.

In FY2016, Wilmar recorded earnings of US$972.2 million. This figure improved to US$1.2 billion and US$1.13 billion respectively for FY2017 and FY2018, and increased further to US$1.29 billion for FY2019. Overall, it recorded a CAGR of 10% over the evaluation period — no mean feat considering it is not a high tech company and given its existing heft.

Wilmar has placed a lot of emphasis on issues related to Environmental, Social and Corporate Governance (ESG). On Oct 15, it announced that it had achieved the highest scores in Asia and is ranked top 10 globally in an independent 2020 Benchmark Findings Report on the F&B sector published by KnowTheChain. The report scored 43 of the world’s largest food and beverage companies based on policies and practices to address forced labour and human trafficking risks within supply chains.

Wilmar, which has some 90,000 workers on its payroll across the world, scored 45 points out of 100, which was well above the global industry average of 28, while the highest global score was 65.

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