Sheng Siong - RHB Invest 2018-02-26: Outlook Dampens On Its Tepid Performance

Sheng Siong - RHB Invest 2018-02-26: Outlook Dampens On Its Tepid Performance SHENG SIONG GROUP LTD OV8.SI

Sheng Siong - Outlook Dampens On Its Tepid Performance

  • Sheng Siong’s 4Q17 earnings are slightly below expectations, while sales did not grow as fast as we expected. We believe this could imply the ceding of market share to other supermarket operators or even online players. 
  • Maintain NEUTRAL, with a slightly lower Target Price of SGD0.98 (from SGD0.99, 6% upside). 
  • Our FY18-19F earnings are now lower by 1-2% as we factored in higher start-up losses from its maiden store in China, which kicked off operations in November last year.



Sales were not up to expectations. 

  • Despite the strong supermarket sales figure for 4Q17 from Singapore’s Department of Statistics, Sheng Siong’s sales did not grow in tandem with that of the industry. As such, we think there could be some loss of market share to other supermarket operators or even ecommerce players.
  • Sheng Siong has planned to open quite a number of new stores since 2H17, of which three commenced operations in 2H17. Four more new supermarkets are scheduled to be opened in 1H18. 
  • On top of that, we expect it to win three more supermarket sites this year. However, we are still not too optimistic on its total sales outlook, as the closure of its stores at The Verge and Woodlands in 2017 could cause a 5% dip in revenue in 2018.


Limited upside on its gross margin. 

  • The group’s gross profit margin expanded 0.5ppt for FY17 to 26.2%. Meanwhile, its CFO Mr Wong Soong Kit expects the supermarkets’ price bargaining power against suppliers to remain level in the near term. As such, we believe the rate of its margin expansion could slow down. Mr Wong guided for its gross margin to be maintained at around 26%.


No bigger “angpow” from Sheng Siong. 

  • We are slightly disappointed that its dividend payout ratio was maintained at around 70%
  • We understand from Sheng Siong’s executive director Ms Lin Ruiwen that the group prefers to hold more cash for any future opportunistic investments or capex requirements, in the current environment of disruptive technologies.


Maintain NEUTRAL, with a slightly lower Target Price of SGD0.98. 

  • We lower our earnings forecast by 1-2% on the back of start-up losses from its Yunnan, China store. At the moment, we do not see any major reason for investors to rush to accumulate its shares. 
  • Strong traction in its China store and a better-than-expected improvement in consumer spending would be key catalysts for the stock.




Juliana Cai CFA RHB Invest | http://www.rhbinvest.com.sg/ 2018-02-26
RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 0.98 Down 0.990



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