Sheng Siong - RHB Invest 2020-05-29: As Safe As Houses; Maintain BUY


Sheng Siong - As Safe As Houses; Maintain BUY

  • Moving into 2H20, we continue to favour safe haven stock Sheng Siong (SGX:OV8) amid market concerns on weakening global economy, rising US and China trade tensions and COVID-19 resurgence.
  • Earnings wise, we believe outlook still remains optimistic as grocery sales are likely to remain elevated even after the Circuit Breaker due to prevailing work from home measures.
  • Reiterate BUY with new Target Price of SGD1.72 from SGD1.63, 13% upside and c.3% yield.

Expect 2Q to see stronger sales growth.

  • Although we have begun to see the panic-buying pattern taper off from March to May, Circuit Breaker measures have shifted the bulk of on-premise food demand to grocery retail. Consumers also turn to supermarkets as a substitute following the closure of more non-essential shops from 22 Apr. Even as Singapore move into Phase One of post-Circuit Breaker on 2 Jun, dining out continues to be prohibited. Those who can, are still expected to work from home while students from non-graduating cohorts still have some forms of home-based learning. As such, grocery demand is likely to remain elevated from April to June. Thus, we believe 2Q20 could see stronger sales y-o-y growth compared to 1Q20.

Growth to moderate in 3Q but likely to stay positive.

  • Ministers have cited Phase One of post-Circuit Breaker to likely be at least four weeks. Barring a major resurgence of COVID-19 cases in June, we expect Singapore to move into Phase Two at the end of June or some time in 3Q20. The gradual resumption of on-premise dining and social activities in Phase Two would shift some demand away from grocery retail. However, it would not mean returning to pre-COVID days.
  • Employers are likely to be encouraged to adopt work-from-home measures while some forms of social distancing measures should still prevail. We believe 3Q20 will still see decent y-o-y sales growth amid more time spend at home compared to pre-COVID days but growth would likely have peaked in 2Q20.

As safe as houses.

Juliana Cai RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-05-29
SGX Stock Analyst Report BUY MAINTAIN BUY 1.72 UP 1.590