Sheng Siong Group - DBS Research 2020-04-15: Sparked By Circuit Breaker

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SHENG SIONG GROUP LTD (SGX:OV8)

Sheng Siong Group - Sparked By Circuit Breaker

• Circuit Breaker and government support packages to buoy sales growth with some cost savings.
• Anticipate higher sales over more grocery vouchers handed out and more Singaporeans staying home.
• Raise FY20-21F earnings by 2-3%.

Sparked by Circuit Breaker

• We maintain our positive stance on Sheng Siong (SGX:OV8) as we see the new Circuit Breaker measures and support packages lifting sales growth along with some cost savings.
• We turn more optimistic on earnings given higher demand for groceries with more grocery vouchers handed out to Singaporeans under the Solidarity Budget. We have also imputed a small portion of cost savings from the supplementary and solidarity support packages. This results in a 2-3% increase in earnings for FY20-21F and a higher target price of S$1.50, based on 25x FY20F PE, pegged to regional peers.
• We continue to like Sheng Siong for its exposure to Singapore grocery consumption and for being well positioned to serve the food requirements of Singaporeans.
• See also report: Singapore Grocery Retail - DBS Research 2020-04-15: F&B Foodservices Give Way To Supermarket Sales.

Where we differ.

• We do not think online grocery retail will pose a serious threat to Sheng Siong for now as:
  1. Sheng Siong’s target customers are not so much of millennials who are open to online grocery shopping;
  2. warehouses of online grocery retailers are relatively small compared to Sheng Siong’s;
  3. online market is still small and will take time to gain share from brick-and-mortar stores rather than ramp up rapidly.

Potential catalysts.

• We believe that Sheng Siong, with its decent store network and logistics chain, could be a takeover target for online players eventually. Online players such as Alibaba’s Hema (盒马鲜生) and Amazon (Wholefoods) are taking the online-to-offline route and operating physical stores.
• See Sheng Siong Share Price; Sheng Siong Target Price; Sheng Siong Analyst Reports; Sheng Siong Dividend History; Sheng Siong Announcements; Sheng Siong Latest News.

Alfie YEO DBS Group Research | Andy SIM CFA DBS Research | https://www.dbsvickers.com/ 2020-04-15

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