Sheng Siong Group - Maybank Kim Eng 2016-07-05: Competitor store visit update; maintain BUY

Sheng Siong Group - Maybank Kim Eng 2016-07-05: Competitor store visit update; maintain BUY SHENG SIONG GROUP LTD OV8.SI 

Sheng Siong Group (SSG SP) - Low Threat From NTUC’s Budget Moves

Competitor store visit update; maintain BUY

  • NTUC’s newly-introduced budget mini-mart, the FairPrice Shop, is not much of a threat to Sheng Siong, in our view. Instead, it appears to be aimed at allowing NTUC achieve its social mission of helping the poor and moderate the cost of living in Singapore. 
  • Our visits to both newly-launched FairPrice Shops suggest that they cater to low-income groups, especially the elderly, with low-priced products and a limited range. It will not appeal to typical shoppers on their weekly grocery runs. 
  • Maintain BUY on Sheng Siong, with a blended DCF/PE TP of SGD1.12.

NTUC launches budget FairPrice Shops

  • NTUC FairPrice has launched the FairPrice Shop, a mini-market style shop mostly filled with low-priced house brand products. These new stores are located in areas with higher concentrations of low-income families staying in one-room to three-room HDB flats. 
  • Currently, NTUC has two such shops at Eunos and Circuit Road, which were converted from older supermarkets, with plans for four more by end-2016.

Low threat to Sheng Siong

  • Following our visits to the shops, we think the threat to Sheng Siong is low. NTUC is targeting a completely different segment than Sheng Siong – the budget-conscious lower-income groups vs Sheng Siong’s shoppers that are value-conscious but are still able to stretch their budgets. 
  • Also, the product range at FairPrice Shops is much more limited. Their prices are cheaper but weekly grocery shoppers will not be able to fill a full basket.

Conversion, not addition

  • It also does not appear that NTUC is trying to up the competition. 
  • The first two shops were converted from existing smaller supermarkets. It may be doing this in areas where it has more than enough outlets. There are three NTUC outlets within a 1km radius near Circuit Road and Eunos Crescent, where its existing two stores are. 
  • This is also the case with the four locations NTUC has said it may expand into with the new format by the end of the year.

Gregory Yap Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-07-05
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 1.12 Same 1.12