Sheng Siong Group - Maybank Kim Eng 2016-09-27: Done well. Take profit. Prefer Jumbo

Sheng Siong Group - Maybank Kim Eng 2016-09-27: Done well. Take profit. Prefer Jumbo SHENG SIONG GROUP LTD OV8.SI

Sheng Siong Group - Done well. Take profit. Prefer Jumbo


D/G to HOLD; unchanged TP of SGD1.13 

  • We downgrade Sheng Siong from BUY to HOLD as it is close to our DCF-PE blended TP of SGD1.13 (WACC 7.2%, LTG 1.5%, 22x FY17 P/E) and up 28% YTD (we re-initiated in Jun 2016 after transferring coverage to the current analyst). 
  • Positive catalysts for Sheng Siong have run dry for now while potential disappointments and concerns may yet materialise. 
  • For one, its China expansion has been delayed from 4Q16 into 2017 with no firm timing at this point. We reduce FY17 EPS by 1% for this. 
  • Locally, Giant is showing signs of stepping up its game while the appearance of a new owner for the Verge mall could affect sales momentum in early 2017 although we are sanguine on it on a full-year basis. 
  • Switch to Jumbo for lower valuations and stronger growth potential of its franchising business.


Changes to forecasts/TP 

  • We reduce our FY17 EPS forecast by 1% as we lower sales contribution from China from 12 months to 9 months as well as factored in pre-opening opex. However, we raise FY16 EPS forecast as pre-opening opex has been moved to FY17. 
  • As our TP is based on a blended DCF and P/E valuation model factoring in 2016 to 2025 forecasts, it stays unchanged at SGD1.13.


Swing Factors


Upside

  • Higher-than-expected revenue growth on the back of rising food inflation.
  • Better-than-expected food cost savings or lower labour costs following greater automation.
  • Won more-than-expected tenders for public housing sites for new supermarkets.

Downside

  • China supermarket venture does not take off as successfully as expected
  • Inability to pass on higher food costs due to increased competition.




Gregory Yap Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-09-27
Maybank Kim Eng SGX Stock Analyst Report HOLD Downgrade BUY 1.13 Up 1.130



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