SINGAPORE (Apr 16): Maybank Kim Eng continues to rate Sheng Siong “sell” with an unchanged target price of 95 cents.

Singapore’s retail sales in Feb saw a 10.0% drop y-o-y, while the supermarket & hypermarket sub-index was dropped 13.3%. After adjusting for Chinese New Year effects, it is the first time the sub-index saw a y-o-y contraction and the second time since 2016 it had underperformed the main index during the Jan-Feb period.

In a Monday report, analyst Sze Jia Min says, “We believe the weakness reflects deteriorating consumer sentiment due to the uncertainty over US-China trade deal and slowing GDP growth.”

After adjusting for seasonality by averaging for Jan and Feb, supermarket sales declined by 2% y-o-y, but CPI for food ex-food servicing services increased by 1.2%, suggesting that the volume purchases for Jan-Feb 2019 continued their fall since Mar 2018. This reflects the analyst’s concerns on shrinking basket sizes.

Budget 2019, which was announced on Feb 28, introduced supportive measures for low-to-mid income wage earners, but Sze believes that schemes such as GST vouchers only have temporary effects on supermarket sales.

“In past years, we see a slight positive increase in retail sales and supermarket sales in the same quarter the GST Vouchers are credited to eligible Singaporeans. If consumer sentiment remains subdued, we expect supermarket sales to remain trepid for the rest of 2019,” adds Sze.

Sheng Siong’s 1Q19 results are expected to be due this month and is forecasted to be in line with the research house’s expectations.

Sze predicts a 10% y-o-y increase in revenue to about $251 million, due to strong contributions from the record-high of 10 new stores opened in FY18, as well as flat growth in PATMI to $18.3 million, due to higher costs arising from opening of new stores.

As at 11.55am, shares in Sheng Siong are trading at $1.05 or 5.0 times FY19 book with a dividend yield of 3.3%.