Sheng Siong Group

Sheng Siong Group | Buy

Target price: S$1.11

April 11 close: S$0.975

RHB Group Research, April 11

Our recent channel checks in some of the new Sheng Siong supermarkets suggest that the company has worked on improving its store display and brand image to appeal to the younger generation.

The new stores are much neater and cleaner compared to some of the Giant stores. Despite the other two incumbents – NTUC Fairprice Co-operative Ltd and Dairy Farm – increasing their range of fresh produce, Sheng Siong still boasts the highest percentage of fresh mix in sales.

Sheng Siong still has a fairly captive population. We previously highlighted the large number of supermarket sites available for lease by the HDB was a key concern. We maintain the view that close proximity between some of these sites would eventually lead to cannibalisation of sales. But we think the impact would likely be felt in 2-3 years when most of these sites have been bid for and opened.

The construction of the new extension to the distribution was initially estimated to add 10 per cent in capacity but based on recent conversation with management, it revealed that the extension would add 20 per cent more storage space. The extension should be completed by early 2019 and should allow the group to reap more operational efficiencies.

Upgrade to 'buy' with a higher target price of S$1.11 as a result of a 2-3 per cent increase in our FY18-20 estimates and an increase in target price to earnings from 19 times to 21 times.

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