Sheng Siong Group
Price target:
Supermarket sales still in growth mode
CGS-CIMB Research analyst Cezzanne See remains positive on supermarket chain Sheng Siong Group, following healthy sales reported for the first two months of 2021.
In a research note dated April 13, she has maintained her ‘add’ call for the counter with an unchanged target price of $1.88.
According to the Singapore Department of Statistics (SingStat), supermarket and hypermarket sales rose 7.3% y-o-y in January and 13.6% y-o-y in February, respectively. This, See says, is a “pleasant surprise” given the higher bases of 9.4% in January 2020 and 15.4% in February 2020.
She attributes this performance to many still working from home, as well as brisk sales during the Lunar New Year (LNY) period when many were unable to travel.
Noting that 1Q is historically a strong quarter due to LNY celebrations, See estimates Sheng Siong’s revenue grew 6% y-o-y to $348.5 million in the 1Q2021 ended March.
But she opted for a more conservative revenue growth estimate, despite the 10% average sales growth for local supermarkets and hyper
CGS-CIMB “add” $1.88 markets for January and February.
There could also be a potential shrinkage in Sheng Siong’s March sales, as Covid-19 restrictions continue to ease.
Nonetheless, See expects the group’s 1Q2021 ended March gross profit margin to grow to 27.4%, compared to 27% in 1Q2020 as Sheng Siong improves its sales mix and supply chain efficiency.
Based on the higher revenue and margin, she also estimates net profit increased 3.3% y-o-y to $29.7 million in 1Q2021.
Looking ahead, See still believes Sheng Siong’s FY2021 net profit will decrease 21.7% y-o-y. “Our forecasts are intact as revenue growth could decline as the country normalises from the impact of Covid-19,” she adds.
“While earnings should normalise in FY2021, we still think Sheng Siong deserves to trade at a premium over its historical average due to its strong balance sheet and strong market share in Singapore’s supermarket space”.
See also expects Sheng Siong to increase its store acreage by around 25,000 sq ft in FY2021 and 20,000 sq ft in FY2022 — a move that could potentially catalyse earnings.