SINGAPORE (March 8): RHB says Sheng Siong’s expansion plans might be back on track as the irrational bidding from small players for Housing and Development Board (HDB) commercial sites seems to have eased.
“While Sheng Siong did not win any the bid for any new sites this month, we note that the small players were not present in that round of bidding,” says RHB analyst Juliana Cai in a report on Wednesday.
In an earlier report, Cai had noted that Sheng Siong was being outmuscled by small supermarket and minimart chain operators in the bidding war for HDB commercial spaces.
Cai says the aggressive bidding to win the space at “exorbitant” rental rates was unsustainable.
(See: Is there growth left in Sheng Siong?)
(See also: Sheng Siong outgunned in supermarket wars. Is it a worry?)
“The gestation of a new supermarket is typically 2-3 years. Therefore, during the first year of operation, the average revenue of a new supermarket would only be 50% of an average mature store,” says Cai.
“Small players with lower revenue, poorer margins and insufficient balance strength would not be able to ride out these challenge,” she adds.
Now that the small players are out of the way, Cai is “optimistic” that there is still room for Sheng Siong to expand its store count in Singapore.
“There are still pockets of areas where Sheng Siong does not have a presence,” Cai says, adding that there will still be five more commercial units up for bidding over the next six months.
As such, RHB is keeping its “buy” call on Sheng Siong with an unchanged target price of $1.21.
As at 3.05pm, shares of Sheng Siong are trading flat at 94 cents.
