Sheng Siong Group - OCBC Research 2016-03-28: Heartland revitalisation may benefit

Sheng Siong Group - OCBC Research 2016-03-28: Heartland revitalisation may benefit SHENG SIONG GROUP LTD OV8.SI 

Sheng Siong Group: Heartland revitalisation may benefit 

  • Most stores are in HDBs 
  • Could benefit from this initiative 
  • But facing stronger competition 

Heartland shops to get a boost 

  • In this year’s budget, as part of efforts to address immediate concerns, one enhanced initiative announced is the Revitalisation of Shops package, which aims to support promotional activities and upgrading projects in HDB town centres and neighbourhood centres. About S$15m will be directed towards this initiative annually. 
  • With Sheng Siong Group (SSG) in mind, we note that most of their stores are located in HDB blocks. While they may benefit from such initiatives by enjoying potentially higher footfall for instance, besides the downtime experienced if they are directly involved, the general ‘revitalisation’ of the community could lure its competitors to the area as well. 

Short term downtime from change in environment 

  • Historically, certain stores have been affected by similar external factors. For example, their stores do see slower or lower sales as a result of redevelopment projects in neighbourhoods, construction works for new MRT stations, and the like. Some of these works are carried out for more than a year as well. 
  • Nonetheless, these stores do enjoy the return to better growth after such projects are completed, but again, they face potential new competitors opening stores in the same area. 

Room for more productivity initiatives 

  • In the face of stronger competition among grocery retailers, especially through marketing strategies, we see further initiatives to improve efficiency for its operations at its distribution centre as well as on a store level. 
  • Besides the hybrid self-checkout counters implemented, SSG has been known to adopt technology and improve the productivity of its supply chain operations. Thus we believe its gross profit margin can be sustained at around 24%. 

Still steady for 2016 

  • We expect FY16 growth to be supported by its new stores, which should also offset the pressure from the expected closure of its 41k Woodlands store by 2Q17. We remain cognizant of other potential store closures in 2017 as well. 
  • With a steady performance, healthy balance sheet, as well as a dividend yield of ~4%, maintain BUY with fair value estimate of S$0.95.

Jodie Foo OCBC Securities | http://www.ocbcresearch.com/ 2016-03-28
OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 0.95 Same 0.95