Sheng Siong Group - Maybank Kim Eng 2019-10-14: Reiterate SELL


Sheng Siong Group - Reiterate SELL

Mixed bag of results for supermarket and F&B sales

  • The increase in Aug sub-index supermarket sales (+1.8%) was the strongest this year since Jan (+9.6%), which we think is partly due to switching from dining at casual eateries (-0.4%) to home-cooked meals, and a low-base effect y-o-y. However, F&B discretionary spend remains strong.
  • Despite weak economic growth, we have yet to see a clear behavioural switch from ready meals to have home-cooked food and hence sustained demand for fresh produce, which would benefit supermarket operators like Sheng Siong Group.
  • Accordingly, maintain SELL on SHENG SIONG GROUP (SGX:OV8) with unchanged DCF-based Target Price of SGD0.96 (WACC: 7.8%, LTG: 1%).

Supermarket sales likely to remain tepid

  • Positive supermarket sales during August brought growth to -0.1% during 8M19. Year-to-date, however, the sub-index still underperformed F&B sales. We expect Sheng Siong Group’s same-store-sales, together with supermarket peers to remain affected by poor consumer sentiment.
  • We estimate Sheng Siong Group’s same-store-sales need to increase by an average 1.7% y-o-y the next four months to bring full-year growth to our forecast of 0.5%.

No clear sign of slowing F&B spend as yet

  • August F&B spent rose by 3.6% while casual dining places (reported under other eating places: food courts, cafes, casual dining eateries) saw a slowdown in growth (Jun: 2.7%, Jul: 1.6%, Aug: -0.4%). In particular, restaurants reported a 5th consecutive month of positive y-o-y sales growth (+4.9% y-o-y).
  • The data indicates that with restaurant sales outperforming supermarket sales, consumers have not reduced expenditures on the relatively pricier option of a restaurant meal to fresh produce for home-cooked meals. The data continues to support our SELL thesis on Sheng Siong Group.

No change to forecasts

  • Sheng Siong Group is expected to report 3Q results at the end of this month. We make no changes to our forecasts as we have adjusted for stronger new store contributions in the near term.
  • Our Target Price also accounts for a weak recovery in same-store-sales for FY19-20E (0.5% y-o-y).
  • Downside catalysts include decreasing demand for fresh produce due to a preference for convenient ready meals, and intense industry competition.
  • Maintain SELL.

Sze Jia Min Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-10-14
SGX Stock Analyst Report SELL MAINTAIN SELL 0.960 SAME 0.960