RHB has identified Sheng Siong Group and Thai Beverage as two of the Singapore-listed “diamonds” in its list of 12 picks from the region.
Besides these two companies, other “diamonds” shortlisted by RHB are AKR Corporindo; Arwana Citramulia; Home Product Center; Land and Houses; Press Metal; Puradelta Lestari;
Samaiden Group; Sunway Construction; Telkom Indonesia and Time dotcom.
Sheng Siong now runs 67 stores and this number is seen “conservatively” to increase by two for the current FY2023 and coming FY2024.
RHB expects the supermarket chain operator to generate ROE of 27-30% over FY23-25, with growth driven by opening of new stores and margin expansion.
“The outlook for new supermarket outlets available for tender remains encouraging, as the Housing & Development Board’s horizon for new supermarket leases is still in positive territory, on the back of both new and matured developments in the housing estate front,” says RHB, which rates Sheng Shiong “buy”, with a target price of $1.76.
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RHB notes that the company’s gross profit margin has been expanding over the past five years, as it sells a bigger mix of higher margin fresh products, push across more house brands and buying directly from sources.
RHB points out that Sheng Siong is now trading below its historical mean valuation at an attractive -0.5SD from the historical mean P/E.
The target price of $1.76 is based on 19x forward FY2023 earnings.
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The other Singapore-listed pick, Thai Beverage, sells a range of alcohol such as beer and whiskey across the region.
RHB expects ThaiBev to sustain its ROE at around 15% over the next three years, underpinned by robust consumption growth in key markets including Thailand and Vietnam.
“In the near term, we expect ThaiBev’s earnings recovery momentum to continue — taking into account further normalisation of economic activities — whilst the progressive pick-up in tourist arrivals should also lift consumption and benefit all of the group’s divisions,” says RHB, which has a “buy” call and 91 cents target price.
With earnings recovery and stronger cash flow, the company’s net gearing is seen to moderate. Even with higher material and marketing costs, RHB believes ThaiBev can improve its margins because of its pricing power, reinforced by operating leverage.
RHB notes that ThaiBev now trades at just below its 5-year mean of 14.5x, which is deemed “unwarranted”, given its growth prospects and established market position.
As defined by RHB, the 12 diamonds each have an ROE of 15% or more; 2023 net debt/shareholder funds of <0.7x; growing margins this year over 2022; trading below their respective industry average multiples. In addition, their ESG scores got to be above their country median.
