FairPrice Shop's threat to Sheng Siong 'little' and 'unclear'

FairPrice Shop's threat to Sheng Siong 'little' and 'unclear'

Zavier Ong
05/07/16, 01:28 pm

SINGAPORE (July 5): Maybank is keeping its “buy ” call for Sheng Siong Group, with a target price of $1.12 while Daiwa is sticking with its “outperform” rating with a target price of 97 cents.

This comes as NTUC FairPrice recently launched its FairPrice Shop, a mini-market style shop mostly filled with low-priced house brand products. Currently, NTUC has two such shops at Eunos and Circuit Road, converted from older supermarkets, with plans for four more by end-2016.

Daiwa analyst Jame Osman is cautious on this new development. “Given the smaller size and limited product offerings of these NTUC stores, it is as yet unclear whether these stores could materially impact Sheng Siong’s operations,” says Osman.

The research house expects the overall same-store-sales growth trends to remain subdued, with a FY16 forecast of 1.5% y-o-y. The research house also believes that Sheng Shiong’s management could now place greater emphasis on accelerating potential store openings in the upcoming sub-urban areas of Singapore where new households are forming, and where it currently does not have a presence.

Despite the uncertainties of this new competition, Daiwa continues to favour the company for its defensiveness in the consumer sector, as well as the an attractive 2016E dividend yield of 4.6% and its strong net cash position of $114 million.

Maybank, on the other hand, perceives the new FairPrice shops as a “low threat to Sheng Siong”. Analyst Gregory Yap believes that the new store format targets a completely different segment from Sheng Siong and has a more limited product range that may not appeal to grocery shoppers on their weekly runs.

Moreover, it may be doing this in areas where it has more than enough outlets. The existing FairPrice shops are both situated in areas where there are three NTUC outlets within a 1km radius. This is also the case with the four locations NTUC has said it may expand into with the new format by the end of the year, says Yap.

The research house expects to see comparable store sales pick up in line with food inflation, driven by looser monetary policy. The introduction of IT projects such as self-payment, automated cash handling should also lead to lower staff costs, says Yap.

Maybank also sees a potential for equity fund-raising due to sustained high capex above$50m per annum for the past two years as a result of asset acquisitions.

As at 12.05pm, Sheng Siong shares were unchanged at 89 cents.



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