Sheng Siong Group - CGS-CIMB Research 2019-12-09: Our Supermarket Pick

SHENG SIONG GROUP LTD (SGX:OV8)

Sheng Siong Group - Our Supermarket Pick

SHENG SIONG GROUP (SGX:OV8) continued to grow with six new stores win in FY19 that should fuel revenue growth and mitigate any soft same-store-sales in FY20F, in our view.
Despite a property purchase (expected to be finalised at end-19), we expect balance sheet to stay strong, given it was debt-free at end-Sep 19.
We raise our FY19-21F EPS by 0.9-4.3% and still like Sheng Siong Group as a defensive play though the share price is trading close to its 1 s.d. level of 22.2x.

Sheng Siong Group's 9M19 revenue and net profit rose 11.1%/9.5% y-o-y on
- new store sales growth of 10.8% y-o-y and
- sustained gross profit margins (GPM) of 26.8% (ahead of 9M18’s 26.6%).
It had 57 stores (512k sq ft) at end-9M19, versus 54 stores at end-CY18. In its 3Q19 analyst briefing, Sheng Siong Group guided that it will have 59 stores (c.529.5k sq ft) by end-FY19F and 60 stores (c.534.8k sq ft) at end-1Q20F.
Sheng Siong Group also recently proposed the acquisition of commercial premises in Aljunied with a GFA of 2.72k sq m (29.2k sq ft) for S$29.5m. Based on public info, a Giant supermarket is located on the premises, hence we believe Sheng Siong Group could be eyeing that as additional supermarket capacity for FY20F. We expect the acquisition to be completed by end- FY19.

In Nov 19, the Housing Development Board (HDB) mentioned there are at least six/seven supermarket open-bid opportunities available in FY20-21F not including closed bid opportunities (direct awards) that emerge from time to time.
Sheng Siong Group’s strategy is to continue expanding its network of outlets. It opened 10 new stores (c.90k sq ft) in FY18 and will open six new stores (c.38.6k sq ft) by end 1Q20.
We believe Sheng Siong Group’s chances of winning bids to open supermarkets at HDB projects are still good, given the high store acreage additions in the past two years. We think Sheng Siong Group can see at least 25k sq ft of new store additions in FY20-21F (vs. 20k and 10k previously).
We raise our FY19-21F EPS estimates by 0.9-4.3%, largely as we impute higher acreage additions.

We continue to like Sheng Siong Group for its stable margins, healthy balance sheet (Sheng Siong Group had a cash position of S$82.6m with zero borrowings at end-Sep 19) and continued ability to grow market share.
Our Target Price is based on 22.5x CY21F P/E (about 1 s.d. above its historical 3-year mean).
Re-rating catalysts include more new stores, better SSSG and higher dividends.
Downside risks include weak China investment returns.
See Sheng Siong Share Price; Sheng Siong Target Price; Sheng Siong Analyst Reports; Sheng Siong Dividend History; Sheng Siong Announcements; Sheng Siong Latest News.

Cezzane SEE CGS-CIMB Research | https://www.cgs-cimb.com 2019-12-09

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