RHB Group Research analyst Jarick Seet has kept his “neutral” call on Sheng Siong as he expects the supermarket operator’s future sales and profitability to further normalise as economic activities resume.

Seet has also kept his target price unchanged at $1.51, based on its FY2022 P/E of 19x. Seet’s target price also represents an upside of 0% from the counter’s current share price.

Amid the easing Covid-19 restrictions and the transition into living with Covid-19 as an endemic, Seet expects Sheng Siong to post a 9.7% y-o-y decline in its earnings for the FY2022 ending December.

The lower earnings are also partially attributable to the higher cost of goods on the back of rising inflation, the analyst writes in his April 11 report.

“We expect future sales and profitability to further normalise as normal economic activities resume, especially when borders reopen and more people continue their travel plans – this is likely to happen over the remaining course of this year,” says Seet.

See also: <a class='gtm_see_also_1_inread' style='text-decoration: underline;' href='/capital/brokers-calls/analysts-believe-more-upside-go-even-sembcorp-posts-blow-out-first-half?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>Analysts believe more upside to go even as Sembcorp posts 'blow out' first half earnings</a>

“That said, Sheng Siong’s normalised profit levels will likely remain higher than that of the pre-Covid-19 period, in our view, as the company will likely continue to open more stores both in Singapore and China,” he adds.

Sheng Siong is likely to continue its expansion into China as its Chinese subsidiary continues to be profitable. The group’s management is also working on nurturing the growth of its supermarket operations in Kunming, where it currently has four stores, says Seet.

In the 1HFY2022, Sheng Siong will see two stores begin operations from the three leases it secured in 2021. Its management will continue to search for suitable retail spaces in Singapore, particularly in areas where the group does not have a presence in, notes the analyst.

“Management is also committed to diversifying its supply sources to reduce risks of disruptions and ensure stable input prices,” he writes.

See also: <a class='gtm_see_also_2_inread' style='text-decoration: underline;' href='/capital/brokers-calls/temasek-teams-brazilian-investment-company-invest-us700m-brazil?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>Temasek teams up with Brazilian investment company to invest up to US$700m in Brazil </a>

Further to his report, Seet sees inventory shortages in the event of major supply chain disruptions as one of the group’s downside risks. The inability to find affordable areas to lease as well as price wars from its competitors are also key risks to Sheng Siong’s share price.

As at 1.43pm, shares in Sheng Siong are trading flat at $1.51 or an FY2022 P/B of 5.2x. According to Seet’s estimates, Sheng Siong’s dividend yield for the FY2022 stands at 3.7%.

RHB expects Sheng Siong's earnings for FY2022 to be 9.7% lower amid easing Covid-19 restrictions

Cromwell European REIT reports 2.3% higher 1HFY2022 DPU of 8.695 Euro cents

Sasseur REIT reports 2QFY2022 DPU of 1.588 cents, down 1.6% y-o-y

First Resources' 1HFY2022 earnings surge nearly four times to US$128.0 mil due to stronger average selling prices

Bosses, you risk losing employees because of low investments in data skills training

Plugging the cybersecurity talent gap in Singapore

Racing towards the future of healthcare 

RHB expects Sheng Siong's earnings for FY2022 to be 9.7% lower amid easing Covid-19 restrictions

Related Stories

Highlights

ST Engineering sees 1HFY2022 earnings dip by 5.4% y-o-y to $280.0 mil

Related Stories

RHB keeps ‘buy’ on KORE with lowered TP of 87 cents as it remains ‘operationally resilient’

Singapore remains a safe haven despite growing macroeconomic concerns: RHB

Analysts mostly remain positive on Wilmar's business model after 'impressive' 1HFY2022 earnings