Sheng Siong Group - Maybank Kim Eng 2019-08-12: Tale Of Two Fortunes


Sheng Siong Group - Tale Of Two Fortunes

Poor retail sales clear sign of worsening sentiment

  • Supermarket sales together with the main retail sales index disappoint in June, with supermarket sales registering a drop of 0.4% y-o-y while retail sales (excluding motor vehicles) fell by 2.7%. Discretionary items were the main drag. Still, consumers opted to splurge on F&B, reaffirming our thesis on the consumer’s willingness to pay a premium for ready meals over home-cooked food.
  • Reiterate SELL on SHENG SIONG GROUP LTD (SGX:OV8), with unchanged DCF-based Target Price of SGD0.96 (7.8% WACC, 1% LTG).
  • Risks to our view include higher-than-expected new stores, stronger-than-anticipated SSS contributions and improved consumer sentiment.

Sheng Siong Group’s SSS a reflection of industry challenges

  • Sheng Siong Group’s 2QFY19 and 1HFY19 SSS growth (-0.3%/-0.6% y-o-y) closely mirrors the industry’s performance (-0.3%/-0.7% y-o-y), implying the supermarket business is not immune to the challenges faced by the industry.
  • We think the sales contraction is due to a combination of decreasing footfall and shrinking basket values. In our 2QFY19 results note (see report: Sheng Siong Group - In Line With Expectations), we maintain our forecast of full year +0.5% SSS growth for FY19 and FY20E due to low base effect.

The Jewel effect?

  • F&B Services Index continued its fourth consecutive y-o-y increase in sales. Best performer still goes to Fast Food Outlets (+10.6% y-o-y), which the Department of Statistics attributes to the opening of new outlets by some major fast food chains.
  • We think the opening of Changi Jewel Airport which brought in internationally renowned F&B brands, plus new attractions that were opened during the June school holidays, helped boost footfall and F&B outlets’ sales.
  • The year-to-date trend is clear: the consumer’s willingness to spend on ready meals shows the continued inclination to pay for convenience.

No change to forecasts, maintain SELL

  • We believe the latest retail sales and F&B sales performances validate our concerns on the supermarket industry outlook. We make no changes to our forecasts as we have adjusted for stronger new stores contributions in the near term. We remain negative on long-term catalysts.
  • Maintain SELL.

Sze Jia Min Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-08-12
SGX Stock Analyst Report SELL MAINTAIN SELL 0.960 SAME 0.960