SINGAPORE (Nov 1): Analysts have rather contrasting views on supermarket operator Sheng Siong following the announcement of its 3Q19 results.
On Oct 30, Sheng Siong reported $20.5 million in earnings for 3Q19, some 15.9% higher than $17.7 million in 3Q18. This translates to higher earnings per share (EPS) of 1.37 cents for 3Q19, compared to EPS of 1.19 cents in 3Q18.
Revenue for the quarter was 11.4% higher y-o-y at 253.8 million, mainly due to the addition of 13 new stores in Singapore since last year. But comparable same store sales contracted marginally during the quarter as a result of poor consumer sentiment.
See: Sheng Siong reports 15.9% rise in 3Q earnings to $20.5 mil on new store openings
RHB Group Research and DBS Group Research have a positive stance, with both keeping their “buy” calls on the stock, with the same target price of $1.32.
RHB has also kept the stock as one of its top picks for the Singapore consumer sector.
In a Thursday report, analyst Juliana Cai says, “Post-results briefing, we remain optimistic on Sheng Siong’s near-term outlook. Moving into FY20, we believe earnings growth will continue to be driven by maturing of existing stores and new stores openings.”
Furthermore, the analyst sees an opportunity for the group to expand its gross margin, with the launch of the group’s distribution centre extension, which is targeted to be by the end of this year.
Meanwhile, DBS continues to like the stock for its stable earnings and decent dividend yield.
In a Thursday report, lead analyst Alfie Yeo says, “Singapore retail sales for supermarkets has generally been positive this year. Sheng Siong’s growth should continue to be driven by new stores, having opened five new supermarkets this year with one more due to open in 1Q20.”
As for the group’s China operations, it still remains small as net profit was $0.1 million with the new second store yet to breakeven.
OCBC Investment Research in a Friday Market Pulse report has increased its fair value on Sheng Siong to $1.21, from $1.19 previously.
Analyst Chu Peng in the report says, “Management noted that the competition for bidding of HDB shops has become more rational. Looking ahead, we believe that supermarket industry will remain challenging while consumer sentiment may soften in view of an uncertain economic outlook.”
The group has said that it will continue to expand its footprint in areas it does not have a presence and to improve its gross margins by increasing sales mix of higher margin products such as fresh produce. The analyst believes that new stores will remain to be the group’s key growth driver.
On the other hand, Maybank Kim Eng Research has a more bearish stance on Sheng Siong, as it continues to rate the stock a “sell” albeit with a higher target price of $1.00 from 96 cents previously, based on the negative thesis regarding adverse behavioural changes in dining habits, such as reduced demand for supermarket goods & services as consumers migrate to ready meals resulting in lower footfall at older stores.
In a Friday report, lead analyst Sze Jia Min says, “In the near term, we expect new store sales to remain the key driver of growth as Sheng Siong looks to increase market share more aggressively.”
In the group’s latest results briefing, management said that they have bid for five out of six units under the recent exercise, while peers were found to bid for an average of one to two stores. Hence, the analyst is forecasting at least four new store opening per year for FY20/FY21, and raised FY20/21 new store sales estimates, bringing total revenue growth for FY20/21 to 6.8/4.6%, up from 4.3/4.4%.
Besides weak consumer sentiment, management attributed negative same store sales to store cannibalisation as new stores are opened near existing ones, and lower footfall.
“We believe lower footfall is a result of a growing number of consumers preferring ready meals and e-commerce, as consumers opt to purchase (particularly bulky items) via electronic means,” adds Sze.
As at 2.30pm, shares in Sheng Siong are trading at $1.17, or 5.6 times FY19 book with a dividend yield of 3.2%, according to Maybank’s estimates.
