REGIONAL STOCKS hit new lows as the big R word looms although many say the recession is already here. Hong Kong had its worst week since 2008 when the Hang Seng Index closed last Friday at 17,668.8, down 1,249.1 points for the week. The Straits Times Index hit its lowest since May 2010 when it ended at 2,702.03 points on Friday, down 2% for the week.

 

During periods of market turmoil like this, defensive stocks that are nicely sheltered from global volatility will naturally be thrust into the spotlight. One such stock is supermarket operator Sheng Siong Group.

 

In a report issued today (Sept 23), OCBC Securities initiated coverage on this stock with a “hold” rating and target price of 43 cents. The company, which runs a chain of 23 supermarkets and three wet market stalls, is among the leading supermarket chain operators in Singapore. It was listed on Aug 16 with an IPO price of 33 cents. It went as high as 56 cents on Aug 31 before coming down to close at 43 cents on Friday.

 

“As supermarkets participate in the sale of consumer staples, they generally exhibit some resilience against economic downturns. Given the necessity of these items for daily living, demand remains relatively inelastic regardless of economic cycle,” writes OCBC Securities analyst Lim Siyi in the report.

 

For one, during the recent financial crisis, all three major supermarket operators here -- NTUC Fairprice, Dairy Farm and Sheng Siong -- managed to achieve “decent” revenue growth, even as overall consumer expenditure dropped, with consumers eating out less often and cooking more at home.

 

“Even with penny-pinching consumers during periods of economic slowdown, supermarkets would still be able to record sales as consumers would substitute more expensive items for cheaper alternatives,” adds Lim.

 

Perhaps of greater interest to investors is that Sheng Siong is apparently more efficiently run compared to its main competitors. According to an earlier study done by research firm Frost & Sullivan, Sheng Siong was able to achieve the highest revenue per floor area, based on 2009 revenue.