Sheng Siong Group - DBS Research 2015-11-25: Still Going Strong

Sheng Siong Group - DBS Research 2015-11-25: Still Going Strong SHENG SIONG GROUP LTD OV8.SI 

Sheng Siong Group - Still Going Strong 

  • Maintain BUY; margins, store expansion, revenue and earnings growth remain on track. 
  • We continue to like SSG as earnings are firing on all cylinders. SSG is on track towards its 50-store target, margin expansion trend is performing to our expectations, and there is no let up in SSSG. 
  • The company is one of the most well-run grocery retailers in ASEAN, leading regional peers in profitability, cashflow generation and working capital management. 
  • Dividend continues to be attractive at 4.4% based on FY16F DPS of 3.6 Scts. 


On track for store expansion, margins to improve going forward, longer-term drivers continue to develop. 

  • Sheng Siong will have 39 stores by year-end, in line with our expectations and eventual target of 50 stores. 
  • We see margins normalising going into 4Q15 as 
    1. input prices for fresh food should ease as logistical disruption and the haze clears up; and 
    2. pricing should be less aggressive post SG50 and seventh month promotions. 
  • Online initiative remains in the pilot phase. Online sales for grocery retail remain in its infancy in Singapore and we therefore believe Sheng Siong can afford to develop this business over a longer time frame. 
  • Developments in China continue to be on securing suitable sites in Kunming. As the grocery retail scene in China is facing intensifying competition, especially from online channels, we also believe time is on Sheng Siong’s side to land the ideal location. 

Valuation: 

  • Our target price for Sheng Siong is S$1.01 based on 25x FY16F PE. 
  • Valuation is pegged to below +1SD of its historical mean and below regional peers' average of 27x PE. 


Key Risks to Our View: 

  • Store openings, price competition. 
  • Revenue growth will be led by new store openings, since SSSG is low at < 0.5%. Excessive discounts and promotions in the market by competitors will ultimately result in lower margins.


Alfie Yeo DBS Vickers | Andy Sim DBS Vickers | http://www.dbsvickers.com/ 2015-11-25
DBS Vickers SGX Stock Analyst Report BUY MAINTAIN BUY 1.01 Same 1.01


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