<h3>The Edge Billion Dollar Club 2017</h3>

(Oct 23): The stores of Sheng Siong Group are never located in flashy downtown shopping malls but in busy commercial centres in public housing estates, where its customers live.

With a focus on keeping its prices competitive, this homegrown supermarket chain operator has delivered years of steady growth and garnered a strong investor following.

From just one modest store when it started in 1985, the company now has 40 outlets across the island and is taking tentative steps overseas.

This year, for the second year in a row, Sheng Siong has achieved the highest overall score in the commerce category.

Interestingly, the company did not have the highest score on any of the three individual metrics used to determine the Billion Dollar Club rankings — that is, annualised stock return over three years, net profit growth and weighted return on equity (ROE).

Instead, it came second on each of them, which gave it an overall score that put it well ahead of China Aviation Oil (Singapore) Corp and Jardine Strategic Holdings, which were tied in second place.

On the face of it, Sheng Siong appears to have continued growing steadily this past year.

For 1HFY2017 to June 30, the company reported a 5.4% y-o-y rise in revenue to $418.6 million, driven by the opening of new stores. Earnings were up 5.2% y-o-y to $33.2 million.

Gross profit margin for the half year was 25.8%, up from 25.3% in the same period the previous year, as a result of lowered costs.

Specifically, the company managed to improve efficiency with its central distribution centre. An additional 50,000 sq ft will be added by 3QFY2018.

It enjoyed a higher level of rebates from suppliers and benefited from a shift in sales mix towards fresh produce, which generate higher margins.

Earnings were weighed down, however, by substantially lower “other income”, which included government grants, and an increase in “other expenses”, which included credit card charges and setup costs for its new supermarket in Kunming, China.

Sheng Siong faces long-term challenges, though, including the growing popularity of e-commerce.

The company has set up an online channel allforyou.sg, named after its tagline. Yet, it remains to be seen whether it can match other players in this field, where purely online grocers such as RedMart are growing aggressively.

In the meantime, the constant redevelopment of properties in land-scarce Singapore could disrupt Sheng Siong’s business from time to time.

For instance, the company recently had to close an outlet at The Verge, as the whole building will be redeveloped. The company is also due to close an outlet in Woodlands, which covers floor space of about 41,500 sq ft, by end-October. These two outlets together accounted for 7.6% of Sheng Siong’s revenue for 1H2017.

Sheng Siong is taking a chance on new locations to keep growing. It recently leased space for new outlets at Bukit Panjang and Woodlands Street 12.

Group CEO Lim Hock Chee says: “We will continue with our efforts in expanding our retail space in Singapore, particularly in locations where we do not have a presence, to reach out to our potential customers.”

<strong>CAO riding China’s growth</strong><br>The company with the best stock return in the commerce sector over the last three years was CAO, which saw much of that return coming in 2016.

The company is best known for having a monopoly over the import of jet fuel into China, but it has also been quickly expanding as a jet fuel supplier at major airports worldwide, in tandem with the growing presence of Chinese airlines at these hubs.

In fact, less than half its revenue now comes from China, versus about 80% in 2010. Its largest overseas businesses are in Singapore, Hong Kong and the US.

CAO managed only middling scores for net profit growth over the last three years and weighted ROE, though. Clearly, if it is to maintain its overall score in the years ahead, it would have to improve its relative performance on these fronts.

However, the volatility in oil prices is not making it easy.

For 1H2017, CAO reported a 4.41% rise in earnings to US$49.9 million ($67.6 million), on a 55.6% increase in revenue to US$6.9 billion. In its earnings announcement, it acknowledges that oil prices remain volatile amid an uncertain economic and geopolitical outlook.

Still, its underlying business is growing with the expansion of China’s commercial aviation sector. It currently operates out of more than 200 airports in China alone.

In addition, it is trying to expand its business into the trading of oil products other than jet fuel. Notably, it is looking into supplying fuel used in other modes of transportation.

It is also eyeing the niche market of “clean transport fuel”, which includes exotic products such as algae oil.

<strong>Jardine group dominates</strong><br>Finally, it is worth pointing out that more than half the companies in the commerce category that have market values of more than $1 billion belong to the Jardine Matheson group.

Among them, Jardine Strategic — one of the two main holding companies in the group — had the highest score for net profit growth over the last three years, though it was only a few basis points ahead of Sheng Siong.

Its growth momentum appears to have continued this year. For 1HFY2017, Jardine Strategic reported a 19% y-o-y rise in underlying earnings to US$787 million on a 10% y-o-y rise in revenue to US$38.1 billion.

The company also sounded upbeat on the six months ahead.

Chairman Sir Henry Keswick says in a statement: “Good trading is expected to continue in a number of the group’s businesses in the remainder of the year, although the level of profit growth in the second half is likely to be tempered, owing to fewer residential completions expected in Hongkong Land [Holdings] and price competition in a number of the group’s automotive markets.”

One of the other Jardine group companies — supermarket chain operator Dairy Farm International — also had the highest score for weighted ROE over the last three years, beating Sheng Siong by a wide margin.

Listed in London but with secondary listings in Singapore and Bermuda, Dairy Farm operates more than 6,600 outlets across 12 markets, which are grouped into four divisions.

First is food, which includes high-end supermarkets such as Jasons Gourmet Grocer and hypermarket Giant as well as 7-Eleven. Second is health and beauty, where the most prominent brand is Guardian. Third is home furnishings, largely IKEA in Hong Kong, Macau, Indonesia and Taiwan. Fourth is F&B, whose flagship brand is Maxim’s.

Dairy Farm is actively improving its margins by changing its product mix. For example, its supermarkets are introducing more fresh produce and house brands, and having a greater number of higher-end supermarket brands.

In addition, the company is enhancing its distribution network across the region, with new logistics centres in Singapore, the Philippines and Malaysia.

For 1HFY2017, it reported a 6% y-o-y increase in underlying earnings to US$211 million on a 3% y-o-y rise in revenue to US$10.5 billion.

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Sheng Siong gets top score, Jardine Strategic and CAO share second place

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