Here’s why Sheng Siong can’t bank on new stores for rev­enue growth any­more

Singapore Business Review - - ANALYSIS: RETAIL -

Sheng Siong’s 10 new stores will con­trib­ute 7.2% or the bulk of FY2019E to­tal rev­enue growth of 8.4%.

Even though Sheng Siong Group’s earn­ings tend to fare bet­ter than con­sumer-dis­cre­tionary stocks, the risk of sour­ing con­sumer sen­ti­ment poses a down­side risk to its com­fort­able po­si­tion, ac­cord­ing to May­bank Kim Eng, espe­cially when con­sumers are tight­en­ing their purses against slow-to-stag­nant wage growth.

Sheng Siong opened a record high of 10 new stores (those opened in the last and cur­rent fi­nan­cial years) in FY2018. The last time it opened close to that many stores was in FY2012, with eight new stores, noted May­bank KE an­a­lyst Sze Jia Min.

“How­ever, un­like in FY2012, these 10 new stores, par­tic­u­larly those opened in the sec­ond half of FY2018, were opened against a back­drop of de­te­ri­o­rat­ing GDP growth as well as chang­ing con­sumer din­ing habits. Hence, we are more con­ser­va­tive than the Street and man­age­ment in our es­ti­mates of new-store sales con­tri­bu­tions,” Sze said.

Sheng Siong’s man­age­ment also said that its new stores that opened in FY2018 are not grow­ing as fast as their his­tor­i­cal run rates, the an­a­lyst noted. As new stores usu­ally con­trib­ute strong rev­enue growth in their first 3-4 years, May­bank KE ex­pects Sheng Siong’s 10 new stores to con­trib­ute 7.2% or the bulk of FY2019E to­tal rev­enue growth of 8.4%.

“We un­der­stand from man­age­ment that whilst only five new com­mer­cial units will be avail­able for on­line bid­ding in 1H2019, six HDB shops that were won by com­peti­tors via on­line bid­ding in 2017-2018 are now va­cant,” Sze said. Of these six, three were re­cently awarded to an­other su­per­mar­ket operator. Sheng Siong is look­ing at bid­ding for the other three.

“We as­sume in our fore­casts that it will open four new stores in FY2019E,” Sze added. “In ad­di­tion, we ex­pect the new stores’ con­tri­bu­tion from stores open in FY2019E to be weaker by his­tor­i­cal stan­dards, tak­ing into ac­count more cautious con­sumer spend­ing, mit­i­gated by down­trad­ing.”

More­over, a study by the bro­ker­age firm showed that there is a pos­si­ble long-term trend of con­sumers choos­ing cooked-food de­liv­er­ies avail­able at the push of a but­ton, which may af­fect the fre­quency of their su­per­mar­ket vis­its. Sin­ga­pore con­sumers un­der age 40 are also the most re­cep­tive to cooked-food de­liv­er­ies, the study found.

“This may pose a chal­lenge to Sheng Siong, as it ex­pands to lo­ca­tions with a greater con­cen­tra­tion of younger fam­i­lies. Man­age­ment con­firmed dur­ing its lat­est re­sults brief­ing that sales at its new stores lo­cated in res­i­den­tial ar­eas mainly oc­cu­pied by younger peo­ple are grow­ing more slowly than the his­tor­i­cal av­er­age for its new stores,” Sze com­mented.

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