In its latest 1QFY2021 results ended March, Sheng Siong recorded a 7.5% y-o-y growth in earnings to $28.7 million, with earnings per share (EPS) coming in at 2.1 cents, 0.2 cents higher than last year.
Revenue for the period inched up 2.7% y-o-y to $337.5 million, while gross profit grew 4.9% y-o-y to $93.1 million, outpacing the group’s revenue growth due to the improved gross margin.
See: Sheng Siong Group posts 7.5% higher earnings of $30.8 mil in 1Q21 on higher revenue, gross profit
With its positive 1QFY2021 results, analysts are keeping a positive stance on the supermarket operator's outlook.
RHB Group Research believes that sales for Sheng Siong is likely to peak in 1HFY2021, but this could see a drop in 2HFY2021.
Analyst Jarick Seet says, "Although we expect sales to likely remain elevated for 1H21 – as some of the work-from-home (WFH) trend and travel restrictions stay in place – we think the current vaccination deployment, as well as the resumption of global travel, could be disruptions for 2H21 – resulting in a potential drop in sales and profits."
The research house is maintaining its "neutral" recommendation on Sheng Siong with a target price of $1.70.
Furthermore, Seet believes that as vaccines are progressively being deployed and the world is on its way back to "normal", Sheng Siong's sales and profitability will also rationalise. Hence, he believes that earnings have likely peaked in FY2020, if not FY2021.
CGS-CIMB Research shares similar sentiments as it downgrades its call on Sheng Siong to "hold" from "add" with a lowered target price of $1.60 from $1.88 previously.
Lead analyst Cezzane See says, "While we like Sheng Siong for its operational strength and strong market share in Singapore’s supermarket space, with limited earnings catalyst in sight, we downgrade Sheng Siong from Add to Hold."
"With the ramp-up of Covid-19 vaccination rollout, we expect further reopening of the economy in Singapore, which could cause elevated demand to taper off," says See
Despite a "satisfactory" 1QFY2021 results, See expects the reopening of the economy to bring 2QFY2021 results down. She forecasts negative growth for 2QFY2021, with a revenue decline of 9.3% to $1.26 billion.
Meanwhile, delays in the construction sector could prove to be a problem for Sheng Siong and its new store openings. "We had earlier expected more store openings in FY2021, but in view of construction sector delays, we now expect a slowdown in store openings in FY2021. Assuming Sheng Siong wins the upcoming bid, we estimate the new store to only contribute from 4QFY2021 onwards," she says.
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On the other hand, OCBC Investment Research is still positive on the stock as it has kept its "buy" rating on Sheng Siong with a fair value estimate of $1.72.
Analyst Chu Peng likes the stock for its 1QFY2021 results which came in above estimates due to stronger-than-expected gross profit margins.
"As it takes time to vaccinate the entire population in Singapore and international borders remain largely closed, we expect social distancing, WFH trend and the tendency to eat more frequently at home likely to remain in 2021. This should help to support supermarket sales growth in 1H21 but demand could moderate in 2H21," says the analyst.
Looking ahead, she believes that new store growth will remain Sheng Siong's key growth driver and strategy as demand normalises from the 2020 levels.
PhillipCapital too has an "accumulate" call on Sheng Siong with a target price of $1.71.
Analyst Paul Chew notes that 1QFY2021 revenue remain resilient, powered by new stored that have been opened for a year, while gross margins were above historial levels of 26.8% thanks to lower input prices and higher sales mix of fresh goods.
However, Sheng Siong was not seccessful in two tenders in November last year. Hence, there were no new store openings in the past six months. HDB also has temporarily paused on tenders except for a large store Sheng Siong is looking to bid in the current quarter which could potentially be rolled out in 3QFY2021.
On the outlook, Chew says, "1QFY2021 revenue per sq ft remained elevated at $2,363 on an annualised basis (FY2020: $2,423). A reason was the continued closure of international borders, which kept more households in the country. Working from home was another contributor. As borders re-open, growth in FY2022 should stem from accelerated store expansion from the recent pause in HDB tenders."
As at 2.15pm, shares in Sheng Siong are trading at $1.55 or 5.9 times FY2021 book with a dividend yield of 3.4%, according to RHB's estimates.
