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RHB maintains ‘overweight’ on retail sector; names Sheng Siong and DFI as top picks

Ashley Lo
Ashley Lo • 4 min read
RHB maintains ‘overweight’ on retail sector; names Sheng Siong and DFI as top picks
Sheng Siong, one of the analyst's top picks, is valued for its stable earnings growth. Photo: Bloomberg
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RHB Bank Singapore’s analyst Alfie Yeo has maintained his “overweight” rating on the retail-staples sector as he anticipates growth and recovery to be on track for 2024. 

The analyst notes that the sector’s valuation at 10 times to 15 times FY2025 is “compelling”. Overall, the sector has a dividend yield of 5% to 6%.  

Among the sector, the analyst likes Sheng Siong Group OV8 -

and DFI Retail (DFI), identifying them as his “top picks”. He has given them both “buy” calls with target prices of $1.96 and US$ 2.81($3.79)  respectively. 

“Growth for DFI is driven by the turnaround of Hong Kong and China operations, while Sheng Siong Group’s growth is to be led by new stores,” says Yeo in his sector report dated June 18. 

As a result, the analyst expects a compound annual growth rate (CAGR) outlook of 5% and 13% for Sheng Siong and DFI respectively. 

For the 1QFY2024 results ended March 31, both Sheng Siong and DFI met the analyst’s earnings expectations with revenue for Sheng Siong and DFI growing by 6% y-o-y and 2% y-o-y, respectively. Yeo deems this as “no surprise” due to consumption recovery at DFI and better festive sales and same store sales growth (SSSG) to Sheng Siong. 

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He adds that sector margins for Singapore grocery retailers generally improved on cost control and better gross margins. The analyst’s FY2024 to FY2026 forecasts remained unchanged due to the sector's 1QFY2024 earnings tracking in line with his estimates. 

In the analyst’s view, both Sheng Siong and DFI are “on track for growth and recovery”. “DFI has seen better consumption at its convenience stores and health and beauty segments, while SSG is currently riding on higher store network and more robust consumer demand, “ he writes. 

Going forward, Yeo expects recovery demand momentum for DFI and growth led by new stores for Sheng Siong to continue. 

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With cost control measures also currently in play for both retailers, the analyst remains upbeat on the sector revenue, earning and margins moving forward. 

In addition, the sector looks set to benefit from Singapore’s 2024 GDP growth in 2024, which the analyst believes will translate into more positive consumption and income from the workforce due to the recovery of domestic industries benefiting from a more robust global demand. RHB Bank Singapore’s economic desk anticipates a 2.5% growth of Singapore’s GDP this year.  

Additionally, Yeo anticipates both Sheng Siong and DFI to be beneficiaries of the strong supply of new Housing Development Board (HDB) supermarkets, where four more are currently available for bidding until May 2025. Three more new supermarkets are expected to be up for bidding in the next six months, along with another planned before May next year. 

To this end, the analyst recommends DFI as a top pick for earnings recovery. The analyst notes that DFI’s 1QFY2024 interim performance and outlook is in line with his expectations alongside its “decent” dividend yield attributed to its parent company Jardine Matheson Holdings J36 -

’  efforts in uplifting dividends back to group level.  As of now, the stock trades at an appealing 10 times FY2025 P/E against the analyst’s implied target P/E of 15 times. 

Yeo also highlights Sheng Siong to investors for its stable earnings growth. He remains upbeat on Sheng Siong following steady consumption demand and store opening opportunities.  

“We expect tailwinds from strong SSSG over the Lunar New Year festive period and recently issued Community Development Council (CDC) vouchers to Singaporean households to drive growth,” says the analyst. 

The analyst sees Sheng Siong’s valuation at -1.5 standard deviations (s.d) from its historical mean forward P/E of around 19 times as “attractive”. Additionally, the stock is favourable based on the analyst’s FY2025 estimates of a dividend yield of 4% to 6%. 

As at 12.30pm, shares in Sheng Siong and DFI are trading at $1.50 and US$1.88 respectively. 


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