Sheng Siong Group
Price target:
RHB Group Research “buy” $1.78
Inflation to give Sheng Siong a boost
RHB Group Research analyst Jarick Seet believes that Sheng Siong will be a beneficiary of the current rising inflation. Consumers may release some pent-up demand for dining out, but after the reality of inflation sets in, life will
return to “normal”. Seet believes that the stock is well-positioned as a “value-for-money” supermarket chain, which will be its selling point to be a key beneficiary of this normalisation.
He also views the stock as a defensive option, especially in such a volatile market condition. In his May 24 note, Seet upgraded the stock to “buy” from “neutral” with a higher
target price of $1.78 from $1.51.
“We believe that inflation will likely outweigh the negative impact of the economic reopening, as reality is apt to sink in once the euphoria related to travel and the reopening of F&B and leisure outlets is over,” says Seet.
Thereafter, more people are likely to stay home and have more home-cooked meals, which is a more economical option.
In addition, Seet believes that Sheng Siong could raise prices to pass on costs while preserving margins — something it has achieved in the past. In fact, this might turn out to be a net positive for the company, as the increase in the cost per item will lead to a larger net spend per customer. “Sheng Siong may maintain its gross profit margin, while widening its net profit margin, looking ahead,” adds Seet.
Meanwhile, for the past two years, the group has seen the supply of new HDB commercial space being affected for various reasons, although this is expected to improve gradually. In 2021, the company secured leases for three stores.
Sheng Siong is expected to open three to five new stores yearly over the next three to five years, focusing on areas where it does not have a presence.
“We expect the rise in inflation to be a positive for Sheng Siong, which will help to mitigate any dampener stemming from Singapore’s border and economic reopening. Inflation should also boost its topline,” says Seet, who has lifted FY2022 ending December patmi forecasts by 17%. —