SINGAPORE (June 28): OCBC is maintaining its “buy” call on Sheng Siong Group with an unchanged fair value estimate of $1.12, highlighting it as a defensive business in times of volatility given ongoing trade tensions between US and China as well as Europe.
In a Thursday report, lead analyst Eugene Chua says he continues to like Sheng Siong for its resilient business model, supported by strong cash flow generation and solid balance sheet.
While he admits that the group offers “unexciting growth”, the analyst believes the defensive nature of its business model translates to stable cash flow – which he deems crucial amid the uncertain global economic outlook.
“With nearly 100% exposure to Singapore (except for a new start-up store in China), and selling mainly consumer staples, we expect Sheng Siong’s business to be relatively unaffected by the on-going trade spat in other parts of the world. Note that its new store in Kunming, China, contributed 0.8ppt to 1Q18 total revenue growth, but recorded S$0.1m loss in 1Q18, which in our view, remains insignificant,” opines Chua.
As such, he continues to expect the group’s 5.6% same-store sales growth (SSSG) in 1Q18 to sustain through FY18 due to several factors, including an expanded Tampines 506 store and spillover effects from recent store closures to neighbouring outlets at Jalan Berseh and in Woodlands.
Without these one-off factors, Chua is expecting SSSG to normalise to about 2% from FY19 onwards.
“With healthy tender pipeline in FY18, we expect Sheng Siong to continue to bid rationally for new HDB stores in re-developed and new neighbourhoods, as well as expand in HDB estates where Sheng Siong currently does not have presence in,” concludes the analyst.
As at 10:14am, shares in Sheng Siong are trading 1 cent higher at $1.06 to imply a FY18F dividend yield of 3.3%.
