SINGAPORE (Apr 3): Maybank Kim Eng is resuming coverage of Sheng Siong Group at “buy” with a price target of $1.20, or 25 times FY18 earnings and 7 times EV/EBITDA.
At Sheng Siong's Apr 2 opening price of 93 cents, the counter trades at 19 times FY18E EPS or one standard deviation below its five-year mean and a 41% discount to regional peers.
This comes after the counter’s 12-month underperformance of 10% against the Straits Times Index due to excessive concerns about e-commerce disruptions, in Maybank’s view.
In a Monday report, analyst John Cheong says he believes the group’s future earnings per share (EPS) growth and potential contributions from its new store in China, which opened in 4Q17, have yet to be priced in by the market.
“Relative to Asean supermarket operators and food retailers that trade at 32 times FY18 P/E averages and 28 times FY19 P/E averages, Sheng Siong does not appear overvalued. While these peers operate in bigger consumer countries such as Thailand, Indonesia and the Philippines, it offers higher net margins and dividend yield of 3.6%. We believe it should be a long-term core holding of consumer portfolios,” he notes.
The analyst is projecting for 2% same-store sales growth (SSSG) in 2018, to be mainly driven by further improvements in consumer spending led by higher GDP as well as wage and job growth.
This is given the group’s positive sales growth performance amid rising e-commerce competition in FY17, in line with the turnaround of Singapore’s supermarket retail sales index in 2017 which grew to +3.7% from –0.1% in 2016 from a better economy.
Further, Cheong thinks earnings surprises could come from a potential surge in new stores as HDB sites for bidding have more than doubled to about 20 from three years ago.
“Although Sheng Siong closed two of its largest stores in FY17 due to land redevelopment, it also secured nine more new stores, ahead of the closures. We expect 4% y-o-y revenue growth for FY18E,” concludes the analyst.
As at 11.40am, shares in Sheng Siong are trading 0.54% lower at 94 cents or 4.85 times FY18 book.
