Sheng Siong Group - CGS-CIMB Research 2020-02-19: Resilient Amidst Covid-19


Sheng Siong Group - Resilient Amidst Covid-19

  • Supermarkets are likely to be the key beneficiaries of the “staying indoors” trend, in our view, as people shy away from public areas/restaurants.
  • Especially Sheng Siong Group (SGX:OV8), which has a higher proportion of HDB stores (vs. malls) and caters to the mass market; it stands to benefit from Budget 2020, in our view.
  • Reiterate ADD with a higher Target Price of S$1.46, as we lift our target PER to 24x (c.+2 s.d. level, vs. 22.5x previously).

Supermarkets and mini-marts were a defensive bet during SARS

  • In 2003, both the supermarket and mini-mart indexes rose over Mar-Jul 2003 vs. Singapore’s retail sales and food and beverage services indexes which saw negative y-o-y growth (see Fig1 in attached PDF report).
  • We believe that in 2003, this was likely due to people opting to shy away from public areas on fears of contracting the SARS virus. We think this could recur in FY20F, potentially leading to positive spillover effects on Singapore’s supermarket retail index and SSG’s same-store-sales growth which declined slightly by 0.5% in 9M19.

Budget 2020: Support for households; SSG a beneficiary

  • We believe the S$1.6bn Care & Support Package for households effectively means more cash for the lower-income group and is additional support for FY20F supermarket sales, especially for lower-segment supermarkets like Sheng Siong Group.
  • Potential HDB rental waivers could result in savings for a proportion of Sheng Siong Group’s rental expenses (est. 2.5% of sales). The Jobs Support Scheme could see cash grants on gross monthly wages for selected local staff. The Wage Credit Scheme could have a positive impact on government grants (c.3% of 9M19 net profit) that Sheng Siong Group receives. We make no changes to earnings and await further details from Sheng Siong Group.

4Q19 results preview

  • Sheng Siong Group will announce its 4Q19 results on 20 Feb, and host an analyst briefing on 21 Feb. We estimate 4Q19F revenue of c.S$253.4m (+14.3% y-o-y), driven namely by new store sales mitigating any shrinkage in same-store-sales growth.
  • We also expect core net profit of c.S$19.2m (+9% y-o-y).
  • All in, we project FY19F revenue of S$996.9m (c.+11.9% y-o-y) and core net profit of S$77.7m (c.+10% y-o-y).

Reiterate ADD, upgrade Target Price to S$1.46

Cezzane SEE CGS-CIMB Research | https://www.cgs-cimb.com 2020-02-19
SGX Stock Analyst Report ADD MAINTAIN ADD 1.460 UP 1.37