SINGAPORE (July 31): Shares in Sheng Siong Group are marching higher following its 2Q results announcement on Monday, which saw the supermarket chain report earnings in line with consensus expectations.
For the 2Q19 ended June, Sheng Siong reported a 7.4% increase in earnings to $18.4 million, as revenue grew 11.8% to $238.2 million on the back of contribution from the opening of 13 new stores.
See: Sheng Siong posts 7.4% higher 2Q earnings of $18.4 mil; declares interim dividend of 1.75 cents per share
Shares in Sheng Siong jumped 4.5% from $1.10 on July 29 to close at $1.15 on July 30.
As at 3.38pm on Wednesday, the stock is trading another 2 cents higher at $1.17 – just 1.7% off its 52-week peak of $1.19 in August last year.
“[Sheng Siong’s] growth was largely generated by three new stores that opened in 2Q19, and 10 stores that were opened in 2018,” says Juliana Cai, an analyst at RHB Group Research, in a Tuesday report.
“In addition, the group opened one new store in Kunming, China in June, bringing the total number of stores in China to two,” she adds.
RHB is maintaining its “buy” call on Sheng Siong – its top pick in the retail sector. The brokerage is also raising its target price to $1.32, from $1.23 previously.
“In view of the slowing domestic economy, we favour Sheng Siong for its resilient earnings and expect it to continue outperforming the Singapore retail sector,” Cai says. “We continue to like Sheng Siong as a defensive stock with resilient sales growth relative to the rest of the retail sector.”
Meanwhile, Daiwa Capital Markets analyst Jame Osman notes that Sheng Siong’s management, at a post-results investor luncheon, sounded “upbeat” on prospects of opening even more new stores.
“It believes opportunities to secure new retail space have improved significantly relative to around two years ago,” he says.
Daiwa is keeping its “outperform” rating on Sheng Siong, and raising its target price to $1.24 from $1.19.
“We reaffirm our ‘outperform’ rating as we believe current valuations are inexpensive considering Sheng Siong’s earnings growth profile, and sustainable dividend yield of 3.5%,” the analyst adds.
Market watchers note that Sheng Siong had participated in six out of seven closed tenders from HDB in 2Q – and will more likely than not add to its total store count of 57.
The way CGS-CIMB Research analyst Cezzane See sees it, Sheng Siong has a “good chance” of winning at least 3-4 stores, especially since its nearest competitor, Giant, is in consolidation mode.
“We also think Sheng Siong could stay aggressive in new store bids to gain market share; this will provide a continual pipeline for new store revenue growth,” See says. “Aggressive store bidding by Sheng Siong could raise the store count in FY20F. We lift our FY19-21F EPS forecasts by 1-4%.”
“We think Sheng Siong will be rewarded for its steady earnings and store growth amid market volatility,” she adds.
CGS-CIMB is upgrading Sheng Siong to “add, from “hold” previously, and raising its target price by some 14% to $1.25.
However, Maybank Kim Eng Research analyst Sze Jia Min bemoans that Sheng Siong’s new store sales are expected to remain “the only bright spot going forward”.
The analyst notes that the supermarket chain registered negative same-store-sales for the third consecutive quarter in 2Q19, and believes this to be “a reflection of poor sentiment”.
“Management acknowledged during the briefing that down-trading to cheaper groceries in times of uncertainty is a natural result of cautious consumer behaviour,” Sze says.
Maybank is keeping its “sell” call on Sheng Siong, and raising its target price marginally to 96 cents, up from 95 cents previously.
“Our fundamental sell factors are unchanged: continued negative same-store-sales is a result of shrinking basket values; behavioural change in dining habits with consumers preferring ready meals; and intense competition amongst supermarkets,” Sze adds.
According to CGS-CIMB valuations, Sheng Siong is trading at an estimated price-to-earnings (PE) ratio of 22.7 times and a dividend yield of 3.1% for FY19F.
