OCBC Investment Research 2015-07-07: Sheng Siong Group - Decent Upside Potential at Current Price Levels, Maintain BUY

Sheng Siong Group: Decent upside potential at current price levels 

  • Keeping cost discipline 
  • Store renovations usually improve sales 
  • Sufficient upside now 

Management maintains prudence in opening new stores 

  • Local supermarket players have been looking to expand their presence in untapped, suburban areas, and likewise, Sheng Siong Group (SSG) is actively seeking opportunities to open more stores. But the management had reiterated their prudent stance whereby they would not succumb to place a bid beyond their comfort level and open stores at the expense of profitability. 
  • Referring to Singapore HDB’s HBiz website, SSG had earlier bidded for store space in Seng Kang and Punggol but there were higher bidders. 
  • We like their cost discipline, and believe that previously announced new stores in Tampines (9.8k sq ft), Penjuru (4.0k sq ft), Bukit Panjang (5.2k sq ft), Punggol (3.4k sq ft) and Pasir Ris (3.2k sq ft) will aid in driving SSG’s growth for the next two to three years. We keep in mind that opportunities for new store locations lie in the private sector as well. 
  • Moreover, we understand that the group does not expect lease renewals or rental reversions to be of a significant issue. 

Store refurbishments seek to improve performance 

  • 2Q and 4Q are usually the periods when SSG would refurbish selected stores, for example, its McNair store (4.1k sq ft) was renovated in Apr and re-opened in May this year. 
  • We note that SSG reviews their stores’ performances constantly, and we view such renovations favourably despite some downtime as the stores typically achieve improved sales growth as a result. 

Maintain BUY 

  • SSG’s share price had slightly corrected to a recent low of S$0.81 amid a tepid environment, partly due to Singapore’s Apr retail sales data for supermarkets, which rose 1.4% MoM but fell OCBC Investment Research Market Pulse 7 Jul 2015 3 0.5% YoY. 
  • Given a total upside of 15% at current price level, we maintain BUY with an unchanged DCF-derived FV estimate of S$0.92
  • For this year, SSG would gain extra rental income from existing tenants in Block 506 Tampines Central (e.g. an estimated S$0.55m in 1Q15). 
  • SSG could also see continued improvement in bottom line through ongoing cost reduction strategies, and the stock offers a projected FY15F dividend yield of 4.0%. 

(Jodie Foo)

Source: http://www.ocbcresearch.com/