Sheng Siong Group - Maybank Kim Eng 2021-07-31: Best Days Are Over; Prefer A Promo Price

SGinvestors.io

SHENG SIONG GROUP LTD (SGX:OV8)

Sheng Siong Group - Best Days Are Over; Prefer A Promo Price

Initiate coverage on Sheng Siong Group with SELL

• Initiate coverage on Sheng Siong Group (SGX:OV8) with SELL as it’s unlikely to see another windfall year as more people will dine out as the ban should be lifted in 4Q21 once vaccination rate passes 80% in the city. Also, near-term catalysts are limited as new store opening visibility is low.
• All told, we forecast Sheng Siong's FY22 earnings per share (EPS) to decline 7% y-o-y. Our target price for Sheng Siong is based on 19.5x FY22E EPS, or -0.5 standard deviation below its historical mean.
• Take profit on strength of Sheng Siong's share price and switch to Thai Beverage (SGX:Y92) and/or ComfortDelGro (SGX:C52) for reopening plays. See report:
  • ComfortDelGro - Maybank Kim Eng 2021-06-21: Proxy To Domestic Transport Recovery.
  • Thai Beverage - Maybank Kim Eng 2021-05-17: Defensive Despite COVID-19.

Industry becoming less favourable

• Euromonitor projects supermarket sales to decline by 5% CAGR from 2020-2023E. This is because supermarket sales are likely to normalise in the near to medium term as consumers switch to eating outside. The high base sales effects and gradual easing of dining-out measures in 4Q21 due to acceleration of vaccination will drive the impending industry decline.
• We believe Sheng Siong Group, being the second largest supermarket operator in Singapore, is vulnerable to such industry headwinds. At the same time, the pandemic has also accelerated food delivery, which could change consumers’ dining habits post-Covid.
• Meanwhile, Sheng Siong's China store expansion plan is still at an early stage and China sales make up only 2% of group revenue. Therefore, we estimate revenue per sqft to taper to 6% CAGR to S$2,000 by FY23E from S$2,423 in FY20.

Fewer new store openings

• New store opening has been a significant forecast Sheng Siong's FY22 earnings per share to decline 7% y-o-y.

Sell on strength; switch to re-opening plays

• See
  • Sheng Siong's Share Price,
  • Sheng Siong's Target Price,
  • Sheng Siong's Analyst Reports,
  • Sheng Siong's Dividend History,
  • Sheng Siong's Announcements,
  • Sheng Siong's Latest News.
• Sheng Siong's share price is trading at 23x FY22E P/E, which is a 65% take profit on strength given its near-to medium-term earnings downcycle, as well as potential market rotation to post-Covid beneficiaries.
• Higher-than-expected new store openings and/or slower tapering of demand could pose upside risk to our target price.
• See the 26-page PDF report attached below for complete analysis on Sheng Siong Group, including investment thesis, financial analysis and ESG metrics, etc.

Kareen Chan Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-07-31

SGX Stock Analyst Report SELL INITIATE SELL 1.33 SAME 1.33