Sheng Siong Group - RHB Invest 2019-12-10: More Stores To Come; Maintain BUY


Sheng Siong Group - More Stores To Come; Maintain BUY

  • Sheng Siong remains one of our Top Picks for 2020. We believe its growth story remains intact. New store openings and market share gain should continue to drive earnings next year.
  • Currently, Sheng Siong has more or less secured two new stores. Housing Development Board also still has at least six new commercial units for tenders set aside for supermarkets in FY20.
  • Reiterate BUY, new target price of SGD1.39 from SGD1.32, 13% upside and c.3% FY20F dividend yield.

New store openings are key drivers to earnings growth.

  • SHENG SIONG (SGX:OV8) opened 6 new stores in FY19 (5 in Singapore and 1 in China), bringing its total store count to 61 (59 in Singapore, 2 in China).
  • We note that retail sales for supermarkets and hypermarkets in Singapore have been fairly flattish this year. Sheng Siong was able to generate 11% y-o-y growth in 9M19 revenue, solely due to new stores opening. SSSG was slightly negative at 0.5%.
  • Moving into 2020, we believe the industry growth will remain tepid due to uncertainties in the macro-economic environment. However, Sheng Siong should be able to prop up earnings growth with its continued store expansion strategy.

Expected new stores.

  • Sheng Siong has secured one new store on Marsiling Drive, which is set to open in 1Q20. It also announced a SGD29.5m acquisition of a commercial premise in Aljunied for an additional store. We expect the completion of the property purchase to done in 1Q20, as well. The commercial unit has a GFA of 2,717sqm. It is currently owned by Dairy Farm (SGX:D01) and occupied by a Giant supermarket.
  • As Sheng Siong’s typical size is c.8,000-10,000sq ft, we think group could lease out part of the space for rental income. Besides these two stores, HDB still has at least 6 new commercial units set aside for supermarkets in FY20F. As such, we think there are still opportunities for the group to expand further in 2020.

Market share gain from competitors.

  • With an increasingly challenging operating environment in Hong Kong, we believe Dairy Farm will be focused on improving its profitability in ASEAN. As such, we think Dairy Farm is unlikely to bid aggressively for new stores next year. Sheng Siong could stand to gain in market share, as Dairy Farm continues on its store rationalisation plan next year.

Changes to our forecasts.

Juliana Cai RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-12-10
SGX Stock Analyst Report BUY MAINTAIN BUY 1.390 UP 1.32