Sheng Siong Group - CGS-CIMB Research 2021-07-30: Awaiting New Catalysts


Sheng Siong Group - Awaiting New Catalysts

  • Singapore’s reversion to Phase 2 (Heightened Alert) since May boosted Sheng Siong’s 2Q21 results. Key positive was a record GPM of 28.9%.
  • While ongoing mobility restrictions point towards a strong 3Q, Singapore’s likely reopening (Sep onwards) could cause elevated demand to taper off.
  • Maintain HOLD on Sheng Siong; we believe the near-term elevated demand has been priced in. Target price unchanged at S$1.60 (22x CY22F P/E, 1 standard deviation above 5-year mean).

Sheng Siong's 2Q21 results boosted by reversion to Phase 2 (Heightened Alert)

  • Sheng Siong (SGX:OV8) reported 2Q21 net profit of S$35.1m (+14% q-o-q, -24% y-o-y), which we deem as above expectations, as it boosted 1H21 net profit to 63% of our and 60% of Bloomberg consensus full-year estimates. The reversion to Phase 2 (Heightened Alert) since mid-May led to another round of elevated demand for groceries in Singapore, which led to the stronger 2Q performance on a sequential basis.
  • Key positive was a record GPM of 28.9% (+1.3% points q-o-q, +0.8% pt y-o-y), supported by
    1. higher sales mix of fresh food, and
    2. higher contribution from private label products.

Singapore on track to reopen; elevated demand could taper off

  • Phase 2 (Heightened Alert) which will be in place till 18 Aug could point towards continued strong revenue base in 3Q21F. However, with two-thirds of Singapore’s population set to be fully vaccinated by 9 Aug, the country is set to reopen its economy in mid-Aug, as the government pivots to an endemic approach in dealing with the virus. This could cause home grocery expenses to normalise. We expect Sheng Siong’s revenue to expand 3.6% y-o-y in 3Q21F, before declining 2.8% y-o-y in 4Q21F.

Store opening remains slow

  • Store opening remains slow in Singapore year-to-date, as construction delays restricted supply of new HDB shops. Sheng Siong has participated in the tenders of two; the outcome has yet to be announced. We currently forecast only one store addition in Singapore in FY21F, before its expansion returns to a more normalised pace of four new stores p.a. from FY22F.
  • Meanwhile, Sheng Siong aims to nurture growth in Kunming, China with two new stores this year, bringing its total store count there to four by year-end. While Sheng Siong’s China operation is profitable (0.6% profit contribution to group in FY20), we are cautious on this move, as China’s supermarket industry is facing rising pressure from grocery e-commerce players.

Maintain HOLD and target price of S$1.60

ONG Khang Chuen CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-07-30
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.600 SAME 1.600