Sheng Siong Group

[specuvestor]

Frankly I'm shocked that Sheng Sion chose to open an Orchard Mall. That doesn't seem to dovetail with their value strategy

And $8m remuneration vs $9.5m for DBS CEO

[Big Toe]

Not all outlets will work out. Neighborhoods included. Orchard may or may not work out.
Success and failure is part and parcel of doing biz even when due diligence is done.
In any case, it is towards the end of Orchard and not the prime shopping belt where rent is much higher.
From what I can see, it is cut and paste and the store looks exactly like any other store with the same product offering.
I wonder if they will tweak their offering once they know what sells better at this location.

As for remuneration. Tough one. DBS CEO did not build DBS from scratch to what it is today. Entrepreneurs should be rewarded fairly as in this case. One's a worker, the other's an owner. Owners tend to work much harder.

From AI :Based on public bourse filings and insider rosters, there is no record of Tan Su Shan purchasing DBS shares through the open market using her own personal funds. Instead, her entire recorded stake has been built through the bank's internal remuneration programs:

[weijian]

Frankly I'm shocked that Sheng Sion chose to open an Orchard Mall. That doesn't seem to dovetail with their value strategy

And $8m remuneration vs $9.5m for DBS CEO

Hi specuvestor,

Back in Sept 2013, I had written a post on the Lims' remuneration and I will re-produce it below again:

The 3 Lim brothers and Mr Tan (former PSC founder) are drawing ~1.7mil each based on last full financial year FY12 disclosure, translating to ~7mil of pay. Based on latest reports at FY13, SSG has a market cap of 820mil and 40mil in net profits.

Comparatively:
- DairyFarm: in FY12, whole board+management earned ~18mil USD (23mil SGD), with market cap of 13.5billion and net profit of 620mil
- SGX: in FY12, Magnus Bocker earned 3.9mil and chairman/director fees came to 6mil, with market cap of 8billion and net profit of 290mil.

As per IPO prospectus disclosure, part of the 3 brothers' remumeration is each will be drawing 2.5% of PBIT. With this formula, it seems like they always be drawing ~12-15% of net profit on an annual basis.

With ~69% ownership, wouldn't the Lim brothers be better off by reducing their remumeration to boast profits (with similar P/E) and hence increase their TOTAL wealth via their ownership?

Putting the 100% increase in price since IPO aside, are minority shareholders' interests aligned with Management in the long term?

I had looked at SSG back then but I have to admit that I did not invest in it, mainly due to the remuneration structure. Subsequently, qualitative factors like becoming asset heavy also weigh in and along the way, the 2.5% of PBIT formula increased to 3.7%, which further drew the irk of "CG experts". During all this time, SSG's profitability (and share price) continued to climb almost relentlessly. This was a huge Type 2 error on my part.

If I compare to my post back in Sept2013, each Lim brother's remuneration had grown ~3x by end 2025 (FY12:1.7mil each vs FY25:7mil each). SSG's PATMI had also roughly tracked that (FY12:40mil vs FY25:149mil). But if we were to be strict, each Lim is actually drawing slightly more now compared to 12years ago in 2013.

So what is excessive remuneration? What is the right remuneration structure? It is subjective isn't it? Regardless, most importantly as investors, we have to invest in what makes us money, and not "what is the right remuneration".

Of course, plenty of excessive remunerated insiders don't make money for OPMIs and they are the norm on the local exchange - The base rates are low for OPMIs to be able to make money off among the excessively remunerated insider listed firms but SSG seems to be an outlier. In investing, it is all about looking for outliers.

------

Now to the Orchard store. The CAPEX for a typical store is 1mil (answer by Mgt in 1 of those AGM Q&A published on SGX i think) and Big Toe has said that it doesn't look much different. So I will do a simple extrapolation and say that this store had used ~3-4mil for renovation. Next, a typical store takes ~2years to ramp and a typical mall lease is ~3years (based on what I learned from CICT CEO). As a belated SSG shareholder, I feel this experimental lease is right on cue. For all we know, it unlocks a new formulae for expansion. The 2 other mall expansions are about replacing a competitor's previous lease/space, so they will soon be able to help everyone to understand if SSG is able to replicate their expansion formulae across geographical typologies.

[specuvestor]

Hi Weijian

It's not about remuneration per se but the amount 1) should be comparable to other similar CEOs and 2) it can induce a certain hubris or even disincentive to work hard generally, unless they are really very passionate about their non monetary objective. That's also the similar concern with Singapore's ministerial pay on behaviors because psychology is the same under the sun.

In fact when they IPO, market was concerned that they had so much cash that they were investing in multiple money losing investments including equities

It's of course hard to say what is excessive but when you are taking 5% of income and up there with the top CEO pay whereby the quarterly profit is more than your annual revenue it flags something. For full disclosure I have been positive Sheng Siong for more than 10 years and this to me is something to re-examine my thesis. In my view the Structure part in A-B-S is deteriorating.

If it is experimental in non-suburban yes sure to diversify from their core business or just a sign that they can't get more good venues in land limited Singapore. Or also can take reference from what their experiment in China is working out. In fact in my post below on Geylang opening in 2013 my reaction is totally different

https://www.valuebuddies.com/thread-1240...l#pid40109

[Big Toe]

Quote "If it is experimental in non-suburban yes sure to diversify from their core business or just a sign that they can't get more good venues in land limited Singapore."

It is not that they cant get more good venues in land limited Singapore. They can, but HDB tenders are far and few in between. And competition is stiff. Many are eyeing the same location and may outbid SS. So to cut the story short, they can only grow very very very slowly in their current state and form. Alternative locations is not a choice, it is a need.

Many many years ago, I asked directly if they needed smaller HDB space to grow a Sheng Shiong Lite/minimart/convenience store type of layout. The answer is a firm "no". I am not sure if things have changed since then.

[Big Toe]

And Weijian.
It is totally all right NOT to invest in SS when you are uncomfortable with some of the issues you have with the management.
The share price increasing does not mean you are wrong, it just means that this is not a good fit for you. Not buying is not a mistake.

It just so happen that I know a little bit more and I am pretty comfortable with the management. Sales have been predictable but it appears Mr Mkt is assigning
a much high valuation for it of late.

[specuvestor]

Yes indeed they have been saying the same for past 10 years, and also switched from owning to leasing IIRC. Now still looking to add 3 every year...

Quote "If it is experimental in non-suburban yes sure to diversify from their core business or just a sign that they can't get more good venues in land limited Singapore."

It is not that they cant get more good venues in land limited Singapore. They can, but HDB tenders are far and few in between. And competition is stiff. Many are eyeing the same location and may outbid SS. So to cut the story short, they can only grow very very very slowly in their current state and form. Alternative locations is not a choice, it is a need.

Many many years ago, I asked directly if they needed smaller HDB space to grow a Sheng Shiong Lite/minimart/convenience store type of layout.  The answer is a firm "no". I am not sure if things have changed since then.

[weijian]

@Big Toe,
Let's just say that I am trying to improve as an investor and so to me, reducing my Type2 errors is a critical component for achieving my goals. I am glad that your sharing made me less ignorant. I was vested with SSG once it demonstrated that negative same store sales due to the FY20 unsustainable jump in sales, stopped.

@Specuvestor,
When we compare it to other CEOs or company's revenue/profitability, my opinion is that it is still relatively subjective. I fully subscribe to the "structure" part of your "A-B-S". So rather than having subjective comparisons, the benchmark that I use, will only look at controlling shareholder-OPMI alignment. To do that, I focus on the ratio of "salary" vs "dividends received" by the controlling entities. I will use SSG as the example (in this case, a positive one) vs a negative example.

SSG (A positive example of OPMI alignment in the "S" of "A-B-S")
- FY24 salaries received by all Lims entities: ~total 23mil
- FY24 dividends received by Lim entities:~total 51mil
- Back in FY13, they still took home more salaries than dividends but this has largely reversed. Now, the Lims take 1x more home from dividends than salaries. Since OPMIs enjoy the dividends, this to me is sufficient evidence of "OPMI alignment" in the "Structure".

I**N H******s (A negative example of OPMI alignment in the "S" of "A-B-S")
- FY22 salary received by Founder and his wife: ~total 5.7mil
- FY22 dividends received by Founders~2mil
- This trend persisted across years due to the 25% dividend payout ratio. Founder has always consistently taken home more in salary than dividends, and this could be 1-2x more across different years, and across good and bad profit years. So for this particular case, there is sufficient evidence of " NO OPMI alignment" in the "Structure".

This is a simple heuristic I use and although it is really handy, I have to profess it has many limitations. For example, it is only applicable for those companies where the executive also holds a substantial portion of the company. It is also only more applicable for the mid caps. Finally, it also definitely doesn't screen for mgt quality.

P.S. 1 I used historical numbers cos these were already easily available in my notes and I m too lazy to pull out the latest ones. But the historical numbers should still be representative of present.
P.S. 2 Using I**N H******s as a negative example doesn't in anyway insinuate anything negative about the Founder and the company.

[specuvestor]

Hi Weijian

Yes I didn't disagree that it's subjective and hard to say what is excessive but to paraphrase Buffett that he knows when someone is fat without measuring... is because that exceeds normality

That said your comparison of salary vs dividend is valid as one indicator for OPMI alignment which I look at as well. Now to see if the margins in the Business layer continues despite of rising rental cost, including Cathay and shortage of venues.

But how do you manage to get Lim family salary as $23m when total admin expense was $58.5m in 2024? Thanks

[weijian]

But how do you manage to get Lim family salary as $23m when total admin expense was $58.5m in 2024? Thanks

under pg46-47 of AR24:

(1) 3 Lim Bros + Daughter (on the BOD) ~ 21.6mil 
(2) Immediate family members (3 sons + 1 wife) ~ 1.5mil (upper est of their range)
(3) Lim family's salary = (1) + (2) = 21.6 + 1.5 ~ 23mil