Sheng Siong Group - CGS-CIMB Research 2018-08-17: Sweet Supermarket Sweep!

Sheng Siong Group - CGS-CIMB Research 2018-08-17: Sweet Supermarket Sweep! SHENG SIONG GROUP LTD SGX:OV8

Sheng Siong Group - Sweet Supermarket Sweep!

  • Two large store wins with cumulative retail space of 30.4k sq ft takes end-CY18F store count to 52 and 477.6 sq ft; an all-time high of 18.2% y-o-y retail space growth.
  • Two more stores are pending HDB’s acceptance; this could be another kicker to its store count and retail space (54 stores, 495.2k sq ft).
  • We upgrade our CY18-20F estimates by 0.6-6.4% due to new store growth. Further catalysts could come if it can add the other two stores by year-end.
  • We maintain ADD with a higher Target Price of S$1.26 based on an unchanged 22.2x FY19F EPS (+1 s.d. above historical 3-year mean) given the revival in new store growth.
  • Sheng Siong Group stays our favourite supermarket pick, with total upside of 18.3% (+15.2% share price upside and dividend yield of 3.1%).

Two large stores in the bag, all-time high retail space growth…

  • Sheng Siong Group has announced that it won two bids:

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  1. an HDB tender for Block 785E Woodlands Rise and
  2. a negotiated bid for 1 Woodlands Road, Junction 10.
  • What makes these wins impressive is that these stores are larger than its most recent stores won in 1Q18 (each at c.5-6k sq ft) and add a cumulative 30.4k sq ft (10k+20.4k sq ft, respectively). 
  • Sheng Siong Group guides for Block 785E to be operational by Sep 18 and 1 Woodlands Road to be operational before the end of 2018.

…two more in the wings

  • Sheng Siong Group has also submitted the highest bids for Block 451 Bukit Batok (6.9k sq ft) and Block 573 Woodlands (10.7k sq ft) which closed in Jul and Aug 18. These are currently still pending HDB’s final decision. But if eventually awarded, they could boost store count wins as well.

Reaching our end-2020 retail space forecast; we raise our estimates

  • Overall, the secured bids take Sheng Siong Group’s total retail space to 477.6k sq ft by end-CY18F (vs. 404k sq ft at end-CY17) and bring total store count to 52. This is above our earlier end-CY19F retail space of 467.3k sq ft and close to our CY20F area estimate of 487.3k sq ft.
  • Given the stellar retail space win, we upgrade our CY18-20F EPS by 0.6-6.4%. 
  • We now expect Sheng Siong Group to end CY18/19F/20F with retail space of 477.7k/497.7k/517.7k.

No lack of forward supermarket tenders; catalyst for more stores

  • Back in Jul 18, the Housing Development Board (HDB) mentioned that there are at least c.4-5 supermarket open bid opportunities available in the next six months, and we estimate at least another 15 in 2019-22F. This does not include closed bid opportunities (direct awards) that are in the market. Hence, we believe there is no lack of opportunities in the next four years.

Maintain ADD with a higher target price; still our favourite stalwart pick

  • We continue to favour Sheng Siong Group for its niche position as a ‘heartlands’ supermarket brand, which should help it to defend market share against e-commerce players in the near term, in our view. We believe it should trade above its historical 3-year mean of 20.9x forward P/E, given its current net profit and store opening upswing.
  • A strong balance sheet position (end-2Q18 cash of S$75.7m, no borrowings) makes it an even more attractive play.

Catalysts and risks

  • Potential catalysts are sizeable new store wins, better SSSG, higher dividends (SSG is currently not at its peak dividend payout) and swifter China earnings contribution.
  • Downside risks are fewer new stores and lower margins.

Cezzane SEE CGS-CIMB Research | Colin TAN CGS-CIMB Research | https://research.itradecimb.com/ 2018-08-17
SGX Stock Analyst Report ADD Maintain ADD 1.25 Up 1.180