Sheng Siong Group - Maybank Kim Eng 2019-07-31: In Line With Expectations


Sheng Siong Group - In Line With Expectations

2Q19 PATMI in line, due to new stores

  • SHENG SIONG GROUP LTD (SGX:OV8)’s 2Q19 PATMI was in line with our estimate and 1HFY19 met 49.3%/50.1% of consensus/our full-year estimate. New store sales formed the bulk of revenue growth, offset by negative SSS.
  • Maintain SELL, with revised DCF-based Target Price of SGD0.96 (WACC 7.8%, LTG 1%), which implies FY19/20E P/E of 19.1/17.8x, close to 2SD below its 5-year mean.
  • We raise EPS growth for FY20-21E to account for expected higher new stores contribution from China and Singapore. However, our fundamental sell factors are unchanged: continued negative SSS is a result of shrinking basket values; behavioural change in dining habits with consumers preferring ready meals; and intense competition amongst supermarkets.

Same-store-sales a reflection of poor sentiment

  • 1HFY19 SSS of -0.6% was a drag on overall growth. This is the 3rd consecutive quarter of negative SSS. 2QFY19 SSS improved (from -1.0% in 1QFY19 to -0.3% 2QFY19) due to increased marketing and promotional efforts; management acknowledge during the briefing that down-trading to cheaper groceries in times of uncertainty is a natural result of cautious consumer behaviour.
  • We retain our FY19E full-year SSS forecast of 0.5% as we expect a slight rebound due to low base effect in 3Q and 4QFY19.

New stores to be the only bright spot

  • We expect new store sales to remain the only bright spot going forward, as Sheng Siong Group announced it’s bidding for six new stores under the closed bidding system. In addition, the second China store has been operational since Jun 19, earlier than what we expected (3Q).
  • We increase our FY20-21E EPS by 5.9/7.5% due to higher new store openings (raised to 5/3 from 4/2) for FY19-20E, as well as an upward revision for China sales contribution, from 0.7%/0.5%/0.3% to 1%/0.8%/0.4% for FY19-21E.

Maintain SELL, fundamental reasons unchanged

  • Our key takeaways from the briefing supports our fundamental view on the supermarket industry: SSS is likely to continue to be affected by poor sentiment; new store sales are likely to grow slower in areas predominantly resided by young families; and management does see a general contraction in terms of footfall for the supermarket industry.
  • We see long-term catalysts outweighing short-term catalysts from new stores.
  • Maintain SELL.

Sze Jia Min Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-07-31
SGX Stock Analyst Report SELL MAINTAIN SELL 0.96 UP 0.950