Will Sheng Siong scale up amidst stronger com­pe­ti­tion?

Singapore Business Review - - ABACUS -

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.”

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