SINGAPORE (Apr 29): Since the Disease Outbreak Response System Condition (DORSCON) level was raised to “orange” from “yellow” on Feb 7 this year following heightened cases of Covid-19, supermarkets have been the rare beneficiaries of the situation.

Supermarket operator Sheng Siong Group on April 28 reported historical high earnings. “Extraordinary sales in extraordinary times,” says RHB analyst Juliana Cai in her April 29 report.

For the three months ended March 31 2020, Sheng Siong reported a 48.2% y-o-y jump in earnings to $28.7 million, on the back of a 31% y-o-y growth in revenue to $329 million.

See also: Sheng Siong posts 48.2% increase in 1Q earnings to $28.7 mil on elevated consumer demand

Cai says these numbers “significantly exceeded” her expectations. 

Besides the first spate of buying after the DORSCON level was raised from “yellow” to “orange”, Sheng Siong enjoyed strong sales from the Chinese New Year as well. 

The group’s diversified sourcing of non-fresh products to cope with the higher demand, as well as new stores opened in 2019, also helped boost its earnings for the quarter, notes Cai.

During the quarter, Sheng Siong’s sales increased by 31% y-o-y to $329 million.

The earnings growth is seen to continue. Cai is predicting an “exceptional” 2Q2020 after another round of panic buying after the circuit breaker measures were announced in April. The closure of non-essential businesses has also shifted retail patterns to supermarkets from specialty stores.

She has raised Sheng Siong’s FY2020 earnings forecast by 14% to $97 million, while keeping her FY2021-FY2022 forecasts largely unchanged. She is keeping her “buy” call but with a higher target price of $1.63 from $1.42 previously.

“We believe sales and earnings growth will start to taper down once the circuit breaker is lifted (after June 1). Nonetheless, we believe grocery demand will remain elevated, as restrictions are expected to be wound down gradually,” says Cai.

“Furthermore, Singapore is expected to enter a recession this year. The deterioration of the economy is also likely to support more grocery over foodservice retail during the course of 2020,” she adds.

DBS is also keeping its “buy” call with a slightly higher target price of $1.58 from $1.56 previously.

This is due to its “robust sales, and unusually strong same store sales growth (SSSG) at 19.7%”, note DBS analysts Alfie Yeo and Andy Sim in their April 29 report.

However, Yeo and Sim also identify potential risks that might hamper the supermarket group’s earnings, such as new store openings, and excessive discounts and promotions by competitors that may ultimately result in lower margins.

As at 10.11am, shares in Sheng Siong are trading 3 cents higher, or 2.0% up, at $1.49.