SINGAPORE (Oct 16): Maybank Kim Eng Research is reiterating its “sell” call on mass-market supermarket operator Sheng Siong Group (SSG) with an unchanged target price of 96 cents, on the back of “tepid” supermarket sales.

Despite improving in August, supermarket sales contracted 0.1% y-o-y for the first eight months of 2019.

According to latest data in the Retail Sales Index, sales for supermarkets and hypermarkets improved 1.8% y-o-y in August – the largest increase since January this year.

“We expect SSG’s same-store-sales, together with supermarket peers, to remain affected by poor consumer sentiment,” analyst Sze Jia Min says in a Monday report. “We estimate SSG’s same-store-sales need to increase by an average 1.7% y-o-y the next four months to bring full-year growth to our forecast of 0.5%.”

Year-to-date, she notes that supermarket sales has underperformed F&B sales.

The way Sze sees, there is a co-relation between supermarket and F&B sales. “We see ready meals (at F&B outlets) as a substitution to home-cooked meals,” she says, adding that the frequency of having home-cooked meals is “one of the key factors that drive supermarket sales and footfall”.

“The data indicates that with restaurant sales outperforming supermarket sales, consumers have not reduced expenditures on the relatively pricier option of a restaurant meal to fresh produce for home-cooked meals,” Sze says.

Despite weak economic growth, she points out that there is still no sustained demand for fresh produce used in home-cooked food, which would benefit supermarket operators like Sheng Siong.

According to the Department of Statistics (DOS), Singapore’s retail sales have contracted for the seventh consecutive month, falling 4.1% year-on-year in August as cautious consumers shied away from “big ticket” items such as motor vehicles, furniture & household equipment, as well as watches & jewellery.

See: Singapore retail sales fall again in Aug as cautious consumers shy away from 'big ticket' items

“We do not rule out the possibility of some rebound in supermarket sales if economic conditions worsen should consumers react by decreasing their frequency at casual dining places in favour of less expensive home-cooked meals,” Sze says.

As at 1pm, shares in Sheng Siong Group are trading flat at $1.16, implying an estimated price-to-earnings (PE) ratio of 22.9 times and a dividend yield of 3.1% for FY19E.