Sheng Siong Group

Price targets:

RHB Bank Singapore “buy” $2 CGS-CIMB Research “add” $1.88 DBS Group Research “hold” $1.89

RHB keeps ‘buy’ call on Sheng Siong but DBS downgrades to ‘hold’

RHB Bank Singapore’s Alfie Yeo has maintained his “buy” call and $2 1QFY2023 ended March price on Sheng Siong Group, following its 1QFY2023 earnings that came in within expectations.

In 1QFY2023 ended March, Sheng Siong reported earnings of $33 million, down 5.3% y-o-y, while revenue was hardly changed at $357 million, down 0.4% y-o-y.

The supermarket chain operator has “continued to generate cash flow and expand its store network during that quarter, and defied the odds against the normalisation in Singapore supermarket retail sales,” writes Yeo in his May 2 note.

The stock is still trading below its historical

P/E mean of 19x. Yeo’s target price is based on 21x current year earnings.

Yeo believes that Sheng Siong’s earnings growth remains on track to meet his revenue and earnings estimate, as well as store opening assumptions from the acceleration of HDB projects after a slowdown during the pandemic.

Similarly, CGS-CIMB Research remains positive on Sheng Siong, citing how the stock possesses “defensive qualities” and is well poised to capture potential shifts in consumer behaviour amid an economic slowdown.

In their May 2 note, analysts Ong Khang Chuen and Kenneth Tan kept their “add” call and $1.88 price target on the stock, pegged to 20x FY2024 earnings.

Re-rating catalysts include faster store openings and stronger private label product sales, while downside risks heightened industry competition, further contraction of grocery demand, and worse-than-expected margin erosion from rising utilities costs.

On the other hand, DBS Group Research has turned cautious, downgrading its call from “buy” to “hold”, although the target price of $1.89, pegged to 21x earnings, remains.

The 1QFY2023 earnings are in line with their expectations. While same store sales continued to decline, the overall revenue was made up by new stores opening.

Gross margins held up but operating margin declined by 1.2 percentage points y-o-y because of higher utility and manpower costs.

“We see limited upside at current levels after recent strong share price performance,” write DBS analysts Andy Sim and Chee Zheng Feng in their May 3 note.

Having said so, the analysts reaffirm their view that Sheng Siong is a “well-run quality business”, and that they would potentially suggest that investors accumulate the shares at lower levels. —