Sheng Siong - Phillip Securities 2022-10-31: Tough Comparison But Better-Than-Expected Sales


Sheng Siong - Tough Comparison But Better-Than-Expected Sales

  • Sheng Siong (SGX:OV8)'s 3Q22 revenue and PATMI beat expectations. 9M22 revenue and PATMI were 78%/82% of our FY22e forecast.
  • Same-store sales declined 7% y-o-y in 3Q22, as it was a tough base year. In 3Q21 Jurong Fishery Port and Pasir Panjang Wholesale Centre closure diverted huge fresh food sales to Sheng Siong stores. The four new stores added 2.6% points of revenue growth.
  • We lift FY22e earnings forecast for Sheng Siong by 5% to S$127.8mil. The increase in GST from 1 January 2023 could also pull some sales into 4Q22.
  • Revenue is normalising post-relaxation of COVID-19 restrictions but at a run-rate around 25% higher than the pre-pandemic period. We believe Sheng Siong’s strength in fresh food continues to drive its grocery market share.

The Positives

Still healthy margins.

  • The higher contribution from fresh food helped Sheng Siong margins to creep up. The ability to manage fresh food effectively from direct sourcing to processing (meat/seafood) in the stores gives Sheng Siong the edge over peers, in our opinion. Food inflation has also seen the downgrading by consumers into Sheng Siong's higher margin house brands.
  • To cater to the store expansions, Sheng Siong will need a larger distribution centre with more automation and specialised equipment

Store roll-out normalising.

  • This quarter Sheng Siong added a new 10,000 sft store in Margaret Drive. Meantime there was a closure of a 5,000 sft Yishun store. The increase in the store footprint in 3Q22 was 5.5% y-o-y.
  • A new 6,000 sft store in Sanja Valley will be added in 4Q22. This will increase total sft in FY22e to 608k sft, a 5% rise. Expectations are for 3 to 5 new stores per annum over the next five years.

The Negative

Weak same-store sales.

  • 3Q22 same-store sales are down 7.2% y-o-y. It is the 2nd consecutive quarter of decline in same-store sales and accelerating from the 2Q22 5% decline. Since the relaxation of COVID-19 control measures in April, we expect less home dining as household activities normalise.


  • We expect weakness in revenue for Sheng Siong until 1H23. The relaxation of border controls, return to office and removal of dining restrictions will be the drag in sales as home dining declines.
  • Our expectations are for growth to resume in 2H23 from the expansion of its store footprint.

Sheng Siong - Recommendation and target price

  • Our BUY recommendation on Sheng Siong is maintained. The target price for Sheng Siong is unchanged at $1.86. Valuation is pegged to 22x P/E, a 10-15% discount to the 5-year historical average of 25x P/E.
  • Sheng Siong’s attractive financial metrics include ROE of 30%, dividend yield at 4% and net cash at S$228mil (as at Sep 2022).

Paul Chew Phillip Securities Research | https://www.stocksbnb.com/ 2022-10-31
SGX Stock Analyst Report BUY MAINTAIN BUY 1.860 SAME 1.860