Limited Growth Potential Prompts Sheng Siong To Offer Big Dividend Carrot

Singapore retailer Sheng Siong, which has 23 supermarkets islandwide, has recently launched an initial public offering (IPO) on the Singapore Stock Exchange at SGD0.33 (US$0.27) per share. A noteworthy aspect of this IPO is Sheng Siong's promised dividend payout for 2011 and 2012. The retailer plans to pay out up to 90% of its net profits in FY2011 and FY2012 as dividends to shareholders, and we believe this move can be largely linked to the limited growth potential of the mass grocery retail (MGR) market in Singapore. The small geographical size and increasingly saturated nature of the Singaporean MGR market leaves limited scope for growth over the medium-to long-term horizon and Sheng Siong is probably looking to attract greater interest from investors by offering a big dividend payout.

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