Analysts at PhillipCapital, DBS Group Research and CGS-CIMB Research have trimmed their respective target prices for Sheng Siong Group OV8 , even though they remain upbeat on the business resilience of the supermarket chain.
On Oct 26 Sheng Siong Group, which runs 69 supermarkets here, reported earnings of $35 million for its 3QFY2023 ended Sept, up 6% y-o-y. Revenue in the same period was up 4% y-o-y to $346 million, with growth coming from both higher same-store sales, plus contribution from new outlets.
In their Oct 27 note, CGS-CIMB analysts Ong Khang Chuen and Kenneth Tan point out that Sheng Siong managed to increase its gross profit margin by 0.9 percentage points y-o-y to 30.3%, which they believe will help ease concerns over potential margin pressure due to industry competition.
They continue to like this stock for its defensive nature, especially valued amid the current backdrop of high inflation and a slower economy.
"We deemed Sheng Siong's current valuation as attractive, as it is currently trading close to its historical trough valuation of 15.3x forward earnings," write Ong and Tan, who have an "add" call on the counter.
However, they've trimmed their target price from $1.88 to $1.82 to take into account slower new stores opening.
Similarly, Chee Zheng Feng and Andy Sim of DBS have maintained their "hold" call but with a reduced target price of $1.62 from $1.76 previously.
"We continue to like the company for its operational excellence and see cost improvement tailwinds. However, we do not foresee any material near-term rerating catalyst," state the analysts in their Oct 30 note.
"Given the higher-for-longer base case scenario, we applied a lower valuation peg of 17x forward PE ratio, four-year average forward PE, on revised FY24F earnings. Accordingly, our TP is lowered from S$1.76 to S$1.62."
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Similarly, in his Oct 30 report, Paul Chew of Phillip Securities has penciled in higher earnings growth for the coming FY2024, thanks to new stores opening and higher interest income, while utility costs will dip.
While he maintains his "buy" call on the stock, Chew has cut his target price to $1.80 from $1.98, as he observed that Sheng Siong's historical valuations have been dipping downward from 22x earnings to 20x. "Post- pandemic there has been a de-rating of growth expectations," states Chew.
On the other hand, Alfie Yeo of RHB Bank Singapore, citing a positive outlook for this stock, has raised his target price from $1.95 to $1.99.
Yeo, in his Oct 27 report, points out that Sheng Siong has continued to show resilience during the latest quarter, posting decent revenue and earnings growth despite last year’s high earnings base due to COVID-19 restrictions.
"This was largely due to a firm consumption environment and strong contribution from new stores. Its outlook remains positive," says Yeo.
Yeo is upbeat that Sheng Siong's bid to open new outlets will help drive earnings. Year to date, out of the five leases that the company has bid for, it has won 1 and is waiting for the results of another three bids.
"Growth opportunities abound as the HDB has five more supermarkets up for tender in the next six months," points out Yeo, adding that additional spending vouchers of some $300 per household from the government to be given for 2024 will help lift sales.
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Besides Singapore, Yeo sees Sheng Siong's expansion in China as another plus.
"We left our FY2024-FY2025 earnings forecasts unchanged, as the outlook remains positive," says Yeo, whose new target price is based on a revised valuation methodology of 21x FY2024 earnings, from 21x blended FY2023 and FY2024 earnings.
In addition, Yeo expects the stock to be supported by its yield of around 5%.
