Will Sheng Siong scale up amidst stronger competition?
They say truth is the first casualty of war, but in Sheng Siong’s case in its battle with Amazon, it seems like dividends have become the first casualty. Building up a war chest is a smart move, according to analysts, but the operator of the thirdlargest chain of supermarkets in the island may be tempted to grab opportunities to build new stores.
“Looking ahead, the group will need new stores particularly in key growth and untapped areas to maintain topline growth,” said Jodie Foo, analyst at OCBC, commenting on the Sheng Siong Group’s second quarter results which showed revenues grew 6.8% year-on-year to $201.5m. She reckoned closed tenders also present opportunities to lock in new store locations.
“We believe the group is opting to stay prudent and maintain a healthy balance sheet, whilst we do not rule out the possibility of the group purchasing stores in ideal locations,” said Nicholas Leow, analyst at UOB Kay Hian, commenting on SSG’S battle plans. He said the stiffening rivalry in Singapore’s retail scene will push SSG to lower its dividends to 70% from 90% not only this year but until 2019, considering it a “prudent move” to build up a necessary cash buffer.
Despite SSG closing its stores at Woodlands and the Verge, Alfie Yeo, analyst at DBS, holds a sanguine outlook for the supermarket chain. “Revenue growth was largely contributed by four new stores that opened in FY16,” he noted in a comment following the release of secondquarter results. “New stores including the 25,000 sq ft Tampines store, 40,000 sqft Kunming store, and higher margins should continue to drive earnings growth.”