Maybank Kim Eng’s Kareen Chan has initiated coverage on Sheng Siong Group with a “sell” call and $1.33, citing its “best days are over”.
From her perspective, the supermarket chain, which benefited from higher-than-normal buying last year amid the pandemic, is unlikely to see another windfall this year as more people dine out with the expected ban lift later this year along with higher vaccination rates.
When the pandemic started early last year, Sheng Siong shares dropped from $1.30 to as low as $1.08 but when scenes of anxious buyers thronging supermarkets started showing, the stock shot up to as high as $1.83 last August. It closed on July 30 at $1.57.
Citing estimates by research firm Euromonitor, Chan notes that supermarket sales will drop by a CAGR of 5% between 2020 and 2023.
“We believe Sheng Siong, being the second largest supermarket operator in Singapore, is vulnerable to such industry headwinds,” writes Chan in her July 31 note.
On July 29, Sheng Siong reported earnings of $65.9 million in 1HFY21 ended June, down 11.9% y-o-y.
“Also, near-term catalysts are limited as new store opening visibility is low,” states Chan, who expects the company’s FY22 earnings per share to drop 7% y-o-y.
Her $1.33 target price is pegged to 19.5 times FY22 earnings forecast.
According to Chan, higher-than-expected new store openings and/or slower tapering of demand could pose upside risk to her target price.
For investors looking for “reopening plays”, her recommendations are Thai Beverage and ComfortDelGro.
