Sheng Siong Group - Maybank Kim Eng 2019-11-01: Decent 3Q; SELL Thesis Unchanged With -12% Return

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SHENG SIONG GROUP LTD (SGX:OV8)

Sheng Siong Group - Decent 3Q; SELL Thesis Unchanged With -12% Return

3QFY19 beat, but fundamentals still weak

• SHENG SIONG GROUP (SGX:OV8)’s 3QFY19 PATMI beat our and street estimates by 76.1-77.4%. See Sheng Siong Announcements.
• We raise FY19-21E EPS by 5.5-6.8% to account for higher new stores and market share growth and revise up DCF-based Target Price 4% to SGD1.00 (WACC 7.8%, LTG 1%). See Sheng Siong Share Price; Sheng Siong Target Price.
• Maintain SELL with 12% downside and negative thesis unchanged based on adverse behavioural changes in dining habits, i.e. reduced demand for supermarket goods & services as consumers migrate to ready meals resulting in lower footfall at older stores. See Sheng Siong Analyst Reports.

Performance of new stores = market share grab

• In the near term, we expect new store sales to remain the key driver of growth as Sheng Siong Group looks to increase market share more aggressively.
• During results briefing, management said they have bid for five out of six units under the recently closed bidding exercise, while peers generally bid for 1-2 stores. We forecast 4/5 new store openings per year for FY20/21E (up from 3/4) and also raised our estimates for FY20/21E new store sales, bringing total revenue growth for FY20/21E to 6.8/4.6%, up from 4.3/4.4%.

Weak same-store-sales due to lower footfall

• Besides weak consumer sentiment, management attributed negative SSS to store cannibalisation as new stores are opened near existing ones, and lower footfall. We believe lower footfall is a result of a growing number of consumers preferring ready meals and e-commerce, as consumers opt to purchase (particularly bulky items) via electronic means.
• We raise our FY19-21E GPM to 27.1% (from 26.5-26.6%) to account for a higher proportion of fresh produce in the product mix.

Maintain SELL

• Considering both YTD industry supermarket sales and SSG’s financial performance, we see Sheng Siong Group’s earnings beat as a consequence of market-share grabbing than a positive fundamental shift in demand for supermarket goods and services. We see long-term catalysts outweighing short-term catalysts from new stores.
• Maintain SELL.

Sze Jia Min Maybank Kim Eng Research | Thilan Wickramasinghe Maybank Kim Eng | https://www.maybank-ke.com.sg/ 2019-11-01

SGX Stock Analyst Report SELL MAINTAIN SELL 1.00 UP 0.960