Sheng Siong Group - CGS-CIMB Research 2021-04-27: Well Stocked For Now


Sheng Siong Group - Well Stocked For Now

  • Sheng Siong's 1Q21 net profit of S$30.8m was in line at 28.4%/29% of our/consensus full-year forecasts; held up by robust GPM and other income.
  • While we are heartened by Sheng Siong’s GP margins, store openings may only emerge in 4Q21F as HDB construction still faces delays.
  • With few earnings catalysts in sight, we downgrade Sheng Siong from Add to HOLD. We lower our target price to S$1.60, based on 22x CY22F P/E (1 standard deviation above mean).

Sheng Siong reported satisfactory 1Q21 results

  • Sheng Siong Group (SGX:OV8)’s 1Q21 net profit of S$30.8m (+7.5% y-o-y) was in line with expectations, as we had forecast a S$29.7m profit for the quarter (1Q was 28.4%/29.0% of our/Bloomberg consensus forecast).
  • Thanks to continued elevated demand amid the COVID-19 pandemic, Sheng Siong’s revenue rose 2.7% y-o-y to S$337.5m in 1Q21. See Sheng Siong's announcements.
  • The key positive was stronger GPM of 27.6% (+0.6% pt y-o-y), supported by
    1. higher sales mix in fresh food, and
    2. lower input prices during the quarter.

Elevated demand to taper off; tougher comparison base ahead

  • With the ramp-up of COVID-19 vaccination rollout, we expect further reopening of economy in Singapore, which could cause elevated demand to taper off. From 5 Apr 2021 onwards, Singapore has shifted from working-from-home as a default to a more “flexible and hybrid” working way of working. Up to 75% (previously 50%) of the employees can now be at work, potentially causing home grocery expenses to normalise.
  • We forecast Sheng Siong's SSSG to turn negative starting 2Q21F, and forecast revenue decline of 9.3% to S$1.26bn in FY21F.

Lowering store opening assumptions given construction delays

  • Sheng Siong's management guided that one HDB site could be open for tender in May 21 (previous tender was in Nov 20, where Sheng Siong was unsuccessful in both bids), and notes that timeline visibility for future tenders remains low. We had earlier expected more store openings in FY21F, but in view of construction sector delays, we now expect a slowdown in store openings in FY21F.
  • Assuming Sheng Siong wins the upcoming bid, we estimate the new store to only contribute from 4Q21F onwards.
  • We lower our forecast for store acreage addition to 5k sq ft in FY21F (25k previously); our FY21-23F EPS forecasts for Sheng Siong are lowered by 3.2-4.0% accordingly.

Downgrade Sheng Siong to HOLD; target price lowered to S$1.60

Cezzane SEE CGS-CIMB Research | ONG Khang Chuen CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-04-27
SGX Stock Analyst Report HOLD DOWNGRADE ADD 1.60 DOWN 1.880