Sheng Siong Group - CGS-CIMB Research 2019-11-15: Pursuing Market Share


Sheng Siong Group -

  • SHENG SIONG GROUP (SGX:OV8) has proposed the acquisition of commercial premises in Aljunied with a GFA of 2.72k sq m (29.2k sq ft) for S$25.9m. It signed the SPA yesterday. See Sheng Siong Announcements; Sheng Siong Latest News.
  • Expected completion of the deal is contingent of some approvals, but if successful could be by FY20F, in our view.
  • Dependent on the size of the new supermarket, we could raise our forecast of Sheng Siong Group's store count win for FY20F.
  • Maintain ADD and Target Price of S$1.30 for now.

Details of the acquisition

  • The commercial asset is situated at Block 118 Aljunied Avenue 2 #01-100 Singapore 380118 and comprises units in the first and second storeys of a seven-storey Housing and Development Board (HDB) commercial property with a four-storey public carpark annex.
  • The property has a gross floor area (GFA) of approximately 2,717 square metres (sqm) with a leasehold tenure of 86 years commencing from 1 Jul 1993.
  • The purchase consideration is c.S$29.5m, with a deposit of S$2.95m paid upon the signing of the SPA on 14 Nov.
  • The proposed acquisition is subject to a few approvals from HDB - privately.

New capacity for FY20F

  • Based on public info, a Giant supermarket is listed on the premises, hence we believe Sheng Siong Group could be eyeing that as an additional supermarket capacity for FY20F.
  • Assuming that half of the GFA (15k sq ft) will become a supermarket, this Sheng Siong Group would be close to meeting our forecast of 20k sq ft of new store space in FY20F.
  • The areas that are not utilised for a supermarket could likely be let out to yield rental income, in our view.

Maintain ADD

  • Sheng Siong Group can easily stomach the acquisition given its net cash position of S$82.6m (no borrowings) as at end-3Q19. We maintain all our forecasts pending the finalisation of the acquisition.
  • We continue to like Sheng Siong Group for its stable margins, healthy balance sheet and continued ability to grow market share.
  • We maintain our ADD call and Target Price, based on 22.5x CY21F P/E (close to 1 s.d. above its historical 3-year mean). See Sheng Siong Share Price; Sheng Siong Target Price.
  • Potential re-rating catalysts include more new stores, better SSSG and higher dividends. The reverse, and weak China investment returns are downside risks.

Cezzane SEE CGS-CIMB Research | https://www.cgs-cimb.com 2019-11-15
SGX Stock Analyst Report ADD MAINTAIN ADD 1.300 SAME 1.300