Sheng Siong Group

[CityFarmer]

Daiwa analyst view on the company China venture. The success of the business model depends on asset-turn-over. If a company can sell $4 of goods, with every $1 of invested capital in a year i.e. asset turnover of 4, even with a thin margin of 5%, it means ROIC of 20%.

(vested, and cautiously optimistic on the China venture)

Sheng Siong's venture into China to yield 'satisfactory' return: Daiwa

SINGAPORE (Jan 28): Profit margins for supermarket operators in China may be thin, but Sheng Siong Group can still expect a decent return from doing business in Asia's biggest economy, according to Daiwa.

The company firmed up plans last month for a joint venture with Kunming LuChen Group, a condiments maker, to operate supermarkets in the country.

Sheng Siong will own 60% of the new entity, which will have a registered capital of US$10 million ($13 million), while LuChen will have a 30% stake. Sheong Siong executive director Tan Ling San will own the remaining 10%.

"Given that its capital-at-risk in this JV is relatively low (US$6 million), we believe Sheng Siong’s expansion into China could be positive for the company in the coming years," Daiwa analysts Jame Osman and Ramakrishna Maruvada wrote in a note.

Sheng Siong plans to open a store in Kunming in 2H2015, they noted, citing feedback from the company's management.

"Sheng Siong intends to replicate its Singapore model of operating supermarkets in suburban areas with an emphasis on fresh foods, in order to obtain revenue market share from traditional ('mom and pop') grocery stores," they said.

"Management is cognisant of the thin operating margins for supermarkets generally in China, but remains confident that it will be able to generate satisfactory ROE (return on equity) levels given the low capital requirements."

Daiwa has an "outperform" rating and a price target of 80 cents on the stock.

Sheng Siong shares rose 0.7% to 71.5 cents at 11:57am (0357 GMT).
http://www.theedgemarkets.com/sg/article...turn-daiwa