Before I started the review, I trimmed my position to right-size the allocation after the recent run-up prior to the Business Update. Personally, I maintain a sizable position in Sheng Siong to receive reasonable dividends and provide an added buffer for the stability of my portfolio. I still hold a sufficiently large position today.
Margin
Sheng Siong's gross margin has been steadily increasing, now exceeding 31.3%. The net margin is at 10.8%, which has also seen an increase. Basic EPS reached 2.6 cents last quarter. Trading at $1.60, this translates to a 6.5% earnings yield on an annualized basis, although this may be slightly lower in practice due to the earnings cycle. However, I suspect some of this could be cashless and might enjoy a premium if they decide to sell their properties. I could be wrong about this, but it won't significantly affect my outlook as I consider it a bonus.
Currently, the annualized dividend yield is about 4%. Compared to alternative investments, this is not particularly impressive since higher earnings and dividends can be found elsewhere, albeit with much higher risk. Therefore, my allocation is always managed to outperform fixed deposits or T-Bills. Since these are not capital-protected investments, there is inherent risk that must be sized appropriately for my situation.
China
On the China front, they reported a minor loss, which I find interesting. In the near term, I do not expect much of an earnings catalyst from that region. Conducting business there is likely challenging for supermarkets, and if the market turns unfavorable, it could be quite detrimental. This is something to monitor closely.
Lease back and final thought
Another point to note is the separate acquisition announcement and leaseback by DFI, which could provide a regular boost to income. Sheng Siong is one of the few rare companies in the SGX market where I can sleep well and earn something; however, we cannot become complacent.
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2024-11-02
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Disclaimer: The articles presented in this blog reflect personal opinions and are intended for informational and sharing purposes only. Not responsible of errors. Readers are advised to seek professional guidance when making financial decisions and should take full responsibility for their choices.
