Stock faceoff – Sheng Siong vs Dairy Farm International

Investing can be simple. You can buy businesses that you are familiar with.

Grocery shopping is a weekly affair for me. Do you have a local grocery store which you will frequent? 

In this article, I am going to compare two of Singapore’s biggest grocery chains. They are Dairy Farm International Holdings Ltd (“DFI”) (SGX: D01) and Sheng Siong Group Ltd (SGX: OV8).

Business Model of DFI

Source: DFI’s portfolio of brands

Home Furnishing Stores

DFI IKEA has stores in Hong Kong, Macau, Taiwan, and Indonesia. There are 14 IKEA stores as of August 2021. DFI IKEA operates IKEA retail under franchise agreements with Inter IKEA Systems B.V.. 

Convenience Stores

DFI’s 7-Eleven operates in Hong Kong, Macau, Guangdong, and Singapore.

Grocery Retail

Grocery Retail sales encompass 57% of the total Group Sales. It remains the key business segment of Dairy Farm. This segment contributes the most amount of revenue. 

DFI’s portfolio of brands under the Grocery Retail segment include Wellcome, Yonghui, Cold Storage, Market Place, Giant, P.T. Hero, Lucky Supermarket and Sanmiu.

Wellcome is the largest supermarket chain in Hong Kong, it has a history of over 70 years. 

Yonghui is a grocery retailer in China headquartered in Fujian with more than 1,300 stores in China. 

Cold Storage is a grocery retailer in Singapore and Malaysia. 

Market Place operates in Hong Kong, Malaysia, Singapore, and Taiwan. 

Giant runs hypermarkets in Singapore and Malaysia. 

PT.Hero operates in Indonesia. Lucky Supermarket operates in Cambodia and Sanmiu operates in Macau.

Health and Beauty Stores

Mannings is a leading health and beauty chain in Hong Kong, Macau, and China. Guardian operates across Malaysia, Indonesia, Singapore, Vietnam, Brunei, and Cambodia. DFI operates stores under license from General Nutrition Centres (GNC) in Hong Kong.


Maxim’s is a household name in Hong Kong for its bakeries. It owns restaurants, cafes and provides catering services. Maxim’s has over 1,700 outlets across Hong Kong, Macau, Mainland China, Vietnam, Cambodia, Thailand, Singapore, and Malaysia. Maxim’s is the licensee for Starbucks and Shake Shack across the regions. 

Business model of Sheng Siong 

Sheng Siong is one of Singapore’s largest retailers. Sheng Siong operates in 58 locations across Singapore. In FY 2020, there are 5 new stores in Singapore.  The retail locations are in the heartlands of Singapore. They provide customers with both “wet and dry” shopping options. This includes live, fresh, and chilled products such as seafood, meat, and vegetables. Sheng Siong is improving its online grocery platform and expanding into China. In China, there are 3 stores.

Which company should an investor choose?

In the following paragraphs, we will make some comparisons, numbers-wise between the two companies to help you determine which company might give you more value for money. 

Gross profit margin

Gross profit is what the company makes after you less the cost of goods sold from its sales.

Gross profit margin  shows how well the company controls its variable cost. It is about maximizing revenue while reducing costs to achieve the greatest profitability.

Gross profit margin for retail companies often depends on economies of scale and distribution network.

Source: Author compiled from companies’ financial reports 

DFI’s gross profit margin is consistent from FY2015 to FY2020. DFI’s businesses are well diversified.

Sheng Siong has increased its gross profit margin over the years from 24.7% in FY2015 to 27.4% in FY2020. Sheng Siong achieves its economies of scale with more outlets across Singapore. They have also strengthened their distribution network. 

Conclusion: Dairy Farm has a higher gross profit margin than Sheng Siong. 

Revenue growth

Sheng Siong has grown its revenue from FY2017 to FY2020 at a CAGR of 18.9%. Conversely, DFI’s revenue has remained stagnant from FY2017, with a slight decline in FY2020. 

Source: Author compiled from financial reports

Conclusion: Sheng Siong has a higher revenue growth rate than DFI. 

Cash Conversion Cycle (CCC)

Source: Author compiled from financial reports 

The cash conversion cycle (CCC) is a metric that expresses the length of time (in days) that it takes for a company to convert its investments in inventory and other resources into cash flow from sales. 

Both DFI and Sheng Shiong have negative cash conversion cycles.  The negative ratios show that both companies are financed by their suppliers to run their operations. In essence, both companies have bargaining power over their suppliers.

Conclusion: Dairy Farm has stronger bargaining power over its suppliers.

Balance sheet strength

The Current Ratio is a liquidity ratio that measures a company’s ability to pay its short-term obligations. The higher the current ratio, the better it is. Sheng Siong has a higher current ratio than DFI. 

Debt/Equity compares a company’s total liabilities to its shareholders’ equity . The lower the ratio, the lower the risk of the company defaulting on its debt obligations. Sheng Siong has a low debt/equity ratio of 0.1 compared to DFI with a debt/equity ratio of 1.99. In the latest quarter Q3 2021, DFI’s debt/equity ratio has spiked to 2.52. This is a red flag. 

Conclusion: Sheng Siong has a stronger balance sheet  than DFI.

Free cash flow growth rate

DFI recorded a slight decline in free cash flow from USD 983 million in FY2019 to USD 819 million in FY2020. Conversely, Sheng Siong recorded a huge jump in free cash flow from S$64 million in FY2019 to S$247 million in FY2020. 

In FY2020, Sheng Siong’s top line surged due to circuit breakers. Singaporeans rushed to stock up their groceries and essentials. Hence, there is a 4x growth compared to FY2019. The vaccination rate passes 80% in Singapore, dining out in groups of 5 is allowed. The rush to stock up on groceries will not happen for the coming year. 

DFI’s free cash flow has increased from FY2015 to trailing twelve months (TTM) at a CAGR of 12.74%. Sheng Siong’s free cash flow has increased from FY2015 to TTM at a CAGR of 24.35%. 

Conclusion: Sheng Siong has a higher free cash flow growth rate than DFI

Dividend payout

Source: FY 2020 dividend from companies’ financial reports

Dairy Farm’s dividend has been decreasing over the years. It used to be USD 0.21 in FY2018 and FY2019. Then it dropped to USD 0.195 in FY2020 and USD 0.145 in FY 2021 respectively. The dividend payout ratio of 129% means the dividend is likely not sustainable. The company may reduce its dividends or take on debts to continue the same level of payout. This is not desirable. Sheng Siong has increased its dividend over the years. The dividend payout ratio is at a manageable 71%. 

Conclusion: Sheng Siong is the preferred company for dividend growth. 

Business updates for Sheng Siong and DFI

Sheng Siong (China) opened a third store in August 2021. It is profitable. Sheng Siong is looking for new retail space in HDB Housing Estate where they do not have a presence. They are not affected by supply chain issues due to the Covid-19 pandemic. This means their cost base is not affected. There is still room for Sheng Siong to grow its revenue and improve profitability.

DFI’s share of Yonghui’s losses for six months ended 31st March 2021 was US$31 million. The gross margins have reduced due to rising online competition. For other DFI’s segments, profitability level has improved.


Going forward, Sheng Siong may not perform as well as FY2020 as circuit breakers may become a thing of the past. However, Sheng Siong will continue to do well if it can expand successfully into China. DFI is in the midst of transforming its businesses. After comparing various financial yardsticks, my view is that Sheng Siong will perform better than DFI.

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