SINGAPORE (May 29): RHB Group Research’s analyst Juliana Cai continues to rate Sheng Siong “buy” with a higher target price of $1.72 from $1.63 previously. Being a beneficiary of the current exceptional environment, Sheng Siong is also Cai’s preferred pick in the consumer sector.

In a Friday report, Cai says, “Moving into 2H20, we continue to favour safe haven stock Sheng Siong amid market concerns on weakening global economy, rising US and China trade tensions and Covid-19 resurgence. Earnings wise, we believe outlook still remains optimistic as grocery sales are likely to remain elevated even after the circuit breaker due to prevailing work from home measures.”

Although panic-buying has tapered off, the circuit breaker measures have shifted the bulk of on-premise food demand to grocery retail. Consumers have also been turning to supermarkets as a substitute following the closure of more non-essential shops.

Even as Singapore moves into phase one of post-circuit breaker on June 2, dining out continues to be prohibited. Those who can, are still expected to work from home while students from non-graduating cohorts still have some forms of home-based learning. As such, grocery demand is likely to remain elevated from April to June.

Hence, Cai believes 2Q20 for Sheng Siong could see stronger y-o-y sales growth compared to 1Q20.

Ministers have cited phase one of post-circuit breaker to likely be at least four weeks. Barring a major resurgence of Covid-19 cases in June, Singapore is expected to move into phase two at the end of June or some time in 3Q20.

The gradual resumption of on-premise dining and social activities in phase two would shift some demand away from grocery retail. However, it would not mean returning to pre-Covid days. Employers are likely to be encouraged to adopt work-from-home measures while some forms of social distancing measures should still prevail.

“We believe 3Q20 will still see decent y-o-y sales growth amid more time spend at home compared to pre-Covid days but growth would likely have peaked in 2Q20,” says Cai.

“We believe the market would also continue to favour this safe haven stock given the uncertain negative lingering impact of Covid-19 on other businesses. We raise our FY20 earnings by 6% on the back of higher sales forecast and government grants,” adds Cai.

As at 12.10pm, shares in Sheng Siong are trading at $1.53 or 6.6 times FY20 book with a dividend yield of 3.2%.