Sheng Siong Group

[smallcaps]

My five cents. If A & B r both loss making or having businesses with low returns, then the cash may indicate hoarding mentality with management or simply the cash is required for survival. Then it might be reasonable to value B less.
If both have businesses with good returns, competent and honest management, it would reasonable to assume that the cash could potentially be invested to reap good returns or simply eventually returned to shareholders. Then it would be illogical to value B less than A.
Luckily for value investors, this logic is often ignored by the market.

[CityFarmer]

My five cents. If A & B r both loss making or having businesses with low returns, then the cash may indicate hoarding mentality with management or simply the cash is required for survival. Then it might be reasonable to value B less.
If both have businesses with good returns, competent and honest management, it would reasonable to assume that the cash could potentially be invested to reap good returns or simply eventually returned to shareholders. Then it would be illogical to value B less than A.
Luckily for value investors, this logic is often ignored by the market.

Good point, and let's explore. One guiding principle for valuation (of mine), is value should align with (future) shareholder interest.

In the former, what is the shareholder interest? I guess it is sustainability of the business, and B should be more sustainable than A, with more retained earning. A will be less sustainable more than B, with less cash reserve, assuming the qualities of management are the same. In other words, valuation of B, should not be less than A, with higher tangible asset, in both cases.

In short, I am advocating that, at all case, we shouldn't value a company A (with x% dividend & y% retained earning) more than company B (with 0% dividend & (x+y)% retained earning).

Anyone has different view? I am browsing the Security Analysis book now, looking for clues on the topic...

(valuation is the weakest, in my structure analysis venture. I am building it up, and all comment are welcomed)

[smallcaps]

My five cents. If A & B r both loss making or having businesses with low returns, then the cash may indicate hoarding mentality with management or simply the cash is required for survival. Then it might be reasonable to value B less.
If both have businesses with good returns, competent and honest management, it would reasonable to assume that the cash could potentially be invested to reap good returns or simply eventually returned to shareholders. Then it would be illogical to value B less than A.
Luckily for value investors, this logic is often ignored by the market.

Good point, and let's explore. One guiding principle for valuation (of mine), is value should align with (future) shareholder interest.

In the former, what is the shareholder interest? I guess it is sustainability of the business, and B should be more sustainable than A, with more retained earning. A will be less sustainable more than B, with less cash reserve, assuming the qualities of management are the same. In other words, valuation of B, should not be less than A, with higher tangible asset, in both cases.

In short, I am advocating that, at all case, we shouldn't value a company A (with x% dividend & y% retained earning) more than company B (with 0% dividend & (x+y)% retained earning).

Anyone has different view? I am browsing the Structure Analysis book now, looking for clues on the topic...

(valuation is the weakest, in my structure analysis venture. I am building it up, and all comment are welcomed)

Graham has an opinion in this. Under dividend section I think. Besides being logical or not, the other thing is whether its practical to exploit such discrepencies in valuation? That we shall see years later hopefully, for TTJ
, as a case study...

[specuvestor]

It is not illogical. It makes perfect sense because cash is hand in worth two in others' bush

Using the same example, say both management changed on the 10th year. Company A continue to pay out while B retains. Then suddenly you realise IPT coming for both companies. Salary soaring. Cash unaccounted for. Which company has more risk... remembering that A actually has much less cash than B to play punk.

When we value both company A and B, it is illogical to value B less than A, because asset in A is less than B, while business qualities remain the same for both. The worst case, "extra" retained earning in B, worth nothing, and both A and B will have similar valuation. In practice, the "extra" retained earning should not be discounted to zero, but in between zero and full value.

I do understand the emotional factor for dividend payout, but value investing advocates elimination of emotional factor in valuation, right?

What do you think the above argument?

I think you are looking at different timeline

I am saying for an investor investing at year 1, TOTAL return for Company A market cap with cash payout will be higher than Company B with asset and cash withheld, say after 10 years for exaggerated illustration.

You are actually saying that market cap of B should be higher than A at year 10, which is possible. But the TOTAL return in the 10 years will remain the same that A will be better than B.

In the worst case like you say the cash is worth nothing, investors in A already got some payoffs, thats why A will be trading at premium to B even if at year 10 both company cash are worth "nothing".

I did not say the cash is discounted to zero, but that it should be discounted. I said "market is giving appropriate discount to cash, NOT to the cash generating asset", in fact the ex-cash analysis is always ascribing full value to the cash and see what is the asset value. IMHO it should be the other way round: getting a fair valuation for the assets and then see what is the market discount for the cash Around 10-20% discount is about right.

Cashflow is very important and the shareholders' cashflow is different from the business' cashflow. We are skeptical when a business doesn't generate cash, yet ok for a stock doesn't generate cash for the investor. They are the same principle which is why the structural layer to make sure benefits pass on is important. If cashflow is not important then Greece just need to get their debt changed to perpetual debt and voila problem solved

Dividend payment is not an "emotional" thing It actually signals to the market the cash generative ability vs paper PnL and the management attitude. That's why Ben Graham thinks AGM should approve retaining earnings rather than dividend payments.

OPMI should not have like Hans Solo say: "illusions of granduer" about the cash unless one has access or control. On the other end of the spectrum PE fund know this very well and pushed it to the other extreme which is why they strip a company of cash and load with debt when they list/ relist. The total value they get by structuring as such is much greater than if they list it as it is. They have control.

If your basis is B should be better than A then your focus will be on those "deep value" stocks (quite a few being discussed in VB) that will either turnaround or change management one day, when actually A runs the business working capital and structure tighter.

By the way SSG is doing not too bad on dividends but share price would be higher if it pays more and it can. Starhub on the other hand can't sustain.

[CityFarmer]

Graham has an opinion in this. Under dividend section I think. Besides being logical or not, the other thing is whether its practical to exploit such discrepencies in valuation? That we shall see years later hopefully, for TTJ
, as a case study...

I read the Chapter 29, on the topic. I reckon the answer is there. I will cease the discussion here. Thanks for the input, and sorry for hick-jacking the thread for the discussion.

Security Analysis book is undoubtedly the bible for value investing

Thank you.

[smallcaps]

Graham has an opinion in this. Under dividend section I think. Besides being logical or not, the other thing is whether its practical to exploit such discrepencies in valuation? That we shall see years later hopefully, for TTJ
, as a case study...

I read the Chapter 29, on the topic. I reckon the answer is there. I will cease the discussion here. Thanks for the input, and sorry for hick-jacking the thread for the discussion.

Structure Analysis book is undoubtedly the bible for value investing [emoji14]

Thank you.

U mean Security Analysis? Intelligent Investor also has an opinion on it.

[CityFarmer]

Graham has an opinion in this. Under dividend section I think. Besides being logical or not, the other thing is whether its practical to exploit such discrepencies in valuation? That we shall see years later hopefully, for TTJ
, as a case study...

I read the Chapter 29, on the topic. I reckon the answer is there. I will cease the discussion here. Thanks for the input, and sorry for hick-jacking the thread for the discussion.

Structure Analysis book is undoubtedly the bible for value investing [emoji14]

Thank you.

U mean Security Analysis? Intelligent Investor also has an opinion on it.

yes, it is Security Analysis. My mistake. I will take a look at the Intelligent Investor. Thanks

[CityFarmer]

Sheong Siong story remains strong. The growth will sustain in near future, with the help of new warehouse, and logistic center. The main growth will be contributed by new stores sales.

Interim dividend increased from 1.5 cents per share, to 1.75 cents per share, which is tallied with profit growth. Nothing to complain.

(happily vested)

Sheng Siong’s 2Q net profit leaps 23.1% to $13.6 mil on higher sales, better margins

SINGAPORE (July 23): Sheng Siong Group ( Financial Dashboard)’s net profit leapt 23.1% to $13.6 million in the second quarter ended June 30, 2015, from $11.1 million in the previous corresponding quarter.

The improved bottomline came mainly on higher revenue, improved gross margin and higher level of other income, the supermarket chain group told the stock exchange in a statement.
...
http://www.theedgemarkets.com/sg/article...er-margins

[vesfreq]

Congrats cf.

Still holding my ssg shares. I think the results are quite in line with some of the earlier established expectations, esp the wider margins n more revenues from new outlets. Margins are 25.2% which is much wider than the earlier expected 25% targeted by the SSG management. The contributions from the new stalls are not fully felt for the 1H results. If one were to examine the timing of the when the latest 4 new outlets were added, these commenced operations close to middle of the year. The 2H 2015 results should better benefit from the addition of these latest 4 outlets.

Thanks to Mr Lim Hock Chee for some SG50 spending money.

Congrats to the rest of the folks who are still holding on.

[CityFarmer]

The analyst has a good point, on the customer groups...

(vested)

Sheng Siong started at “buy” by Maybank with $1.07 target price

SINGAPORE (July 27): Maybank Kim Eng has initiated coverage on supermarket chain Sheng Siong with a “buy” call and target price of $1.07, seeing the company benefiting from demographic trends while improving its own operations efficiency.

“Sheng Siong holds its own at the lower end of the supermarket retailing, defying the dominant presence of Giant and NTUC FairPrice,” writes analyst Truong Thanh Hang in a July 27 note.

While there is a common perception that the supermarket scene here is saturated, Maybank Kim Eng sees a few factors benefiting Sheng Siong specifically.

First, its two largest customer groups are the two population segments that are fastest growing: consumers in their 40s to 50s, and foreign workers. Also, Giant, a key competitor, seems “unsettled”, and lastly, there are still opportunities to take market share from the traditional retailers.
...
http://www.theedgemarkets.com/sg/article...rget-price