abacus
Price-check at Sheng Siong
Courting credit
arring biting dogs, delivering the post should be a simple and profitable business. Like many businesses in Singapore, it is finding that its costs are rising faster than its revenues, and profits are being squeezed. Its latest report card showed that expenses grew by 13% whilst revenues were up by only 9%. It still posted a creditable 7.3% increase in net profit for the third quarter, but operating margin decreased from 28.5% to 28.1%. Short of raising the stamp price, the company will have to find other ways to save cash. It is already moving its customer support to the Philippines and India, and plans to invest in some new sorting machines. What people will be watching is what the company does with its cash pile of $125 million. It has embarked on an acquisitions spree over the last two years, spending $75 million on buying companies such as DataPost, a provider of business printing and mailing solutions. It also raised a further $350 million in bonds back in March which will boost its war chest. But some analysts worry these acquisitions may end up being more of a burden than a boon. Sachin Mittal, an analyst with DBS, reckons that as SingPost does not have a controlling stake in some of the 8 companies it has invested in, the mix may be too widespread. “This may leave Singpost at the mercy of local managements of these companies.” If SingPost has a jewel in its crown, it could well be its property portfolio which some analysts reckon could be sold or redeveloped.
outlets that opened this year and checked out two previously non-performing stores to see if they are now up to scratch. They also sought to verify the claim that “Sheng Siong’s prices are the street’s lowest.” So what did they find on the tours of the fruit and vegetable sections? If you were expecting a couple of old aunties at the checkout with an abacus, you would also be wrong. In the outlets visited by the Maybank Kim Eng team, all dry goods and a number of fresh food items have electronic price tags and barcodes attached, whereas a couple of promotional items have iPad-sized tags. “Offering the lowest prices in Singapore’s supermarket hemisphere, Sheng Siong impresses us with its willingness to invest in technology to improve efficiency.” So what did the canny research team price-check? Two bathroom rolls (not sure if luxury, 2-ply or bargain), two liters of oil, and five kilograms of rice. And the verdict? “It is no surprise to us that Cold Storage products command a 15-30% premium over those from NTUC FairPrice and Sheng Siong. We find that Sheng Siong’s prices for staples are the lowest compared with hypermarket Giant and NTUC FairPrice.
Muddying Sheng Siong’s waters Amidst all the letters and lawsuits surrounding Muddy Waters and Olam, one local brokerage decided to see if all was well in fruit and vegetable land and so paid an undercover trip to Sheng Siong, Singapore’s up and coming supermarket brand. Alison Fok and her bargain sniffing team descended on three
Courting credit where it’s due Now that Terry O’conner and the team have finally gotten the Courts IPO away, raising $137 million in the process, the real work begins of using
the new cash to expand into Indonesia. One magic ingredient in the Courts Asia recipe is its ability to credit finance customer purchases. Courts offers credit facilities to its customers at its Singapore and Malaysia stores via an instalment payment scheme over a period of up to 60 months. The scheme, called the Courts Flexi Scheme, is particularly helpful to customers who are unwilling or unable to make full or large cash payments upfront, or are not able to secure credit from other third-party credit providers under similar terms. This helps boost CAL’s sales. In FY Mar 2012, 9% of CAL’s sales in Singapore and 62% of sales in Malaysia were through credit sales, notes Permada Darmono, an analyst with HSBC. Given the group plans to expand in Indonesia, it can be assumed that credit sales would likely make up an even larger proportion than Malaysia. “In our visits to Courts stores in Singapore, we found that they charge up to 28% p.a. in service charges for the Courts Flexi Scheme as well as processing fees. Around 36% of CAL’s total Group sales in 2012 were derived from credit sales as such it forms an important element of CAL’s overall business.” By providing these services in-house rather than outsourcing them, Parmodo adds that CAL is able to fully retain the fees charged for these schemes which are a key source of profits.
SingPost’s burgeoning costs
The Postman fails to deliver SingPost’s costs are rising faster than its revenues, and profits are being squeezed.
B
14 SINGAPORE BUSINESS REVIEW | JANUARY 2013