Sheng Siong - RHB Invest 2022-05-05: Resilient Against Inflationary Pressures; NEUTRAL


Sheng Siong - Resilient Against Inflationary Pressures; NEUTRAL

  • Sheng Siong (SGX:OV8) reported sturdy 1Q22 numbers, with revenue and PATMI rising by 6% and 14% to S$358m and S$35.2m, i.e. slightly ahead of our expectations. However, we expect the normalisation from COVID-19 to continue, which will probably impact its performance ahead – especially now that travel and dining out restrictions have relaxed greatly. As such, we make no change to our stock rating, and our target price is premised on an unchanged 19x FY22F P/E.
  • Maintain NEUTRAL rating on Sheng Siong with a S$1.51 target price, 2% downside with a ~4% FY22F yield.

Able to pass on cost increases to consumers.

  • Despite the rise in its COGS, Sheng Siong has shown that it was able to pass on the increase to end-customers. Its GPM ticked up to 28.7% in 1Q22, from 27.7% in 1Q21 despite a rise in COGS. As a result, we do think that SSG will be defensive against inflationary pressures.
  • Also, as inflation continues to rise, average consumers may choose to cook and dine at home more than expected, after the initial euphoria stemming from the relaxation of COVID-19 measures is over.

3-5 new stores per year over the next 3-5 years.

  • For the past two years, Sheng Siong has seen the supply of new Housing and Development Board commercial space being affected for various reasons – although this is expected to improve gradually. In 2021, the company secured the leases for three stores.
  • Management aims to open 3-5 new stores per year for the next 3-5 years, focusing in areas where it does not have a presence.

Normalisation should continue; maintain NEUTRAL.

  • We expect Sheng Siong’s future sales and profitability to further normalise, as normal economic activities resume. This will be especially so when international borders reopen further, and more people resume their travel plans – which is likely to happen over the rest of this year.
  • That said, its normalised profit levels will likely remain higher than that recorded prior to the pandemic. This is because the company will likely continue to open more stores, both in Singapore and China.
  • Using our in-house proprietary methodology, we derived an ESG Score of 3.0, which is on par with the median score of our Singapore coverage universe. As such, we apply a 0% ESG discount or premium to our target price.
  • See

Jarick Seet RHB Securities Research | https://www.rhbinvest.com.sg/ 2022-05-05
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 1.51 SAME 1.51