· 

Sheng Siong Group Ltd.

 

Sheng Siong Group Ltd

 

Singapore | Consumer Staples

 

 

 

Company description

 

 

 

Established in 1985 and listed in August 2011, Sheng Siong Group Ltd is one of Singapore’s largest retailers with 48 supermarket/grocery stores located all across the island. The stores are designed to provide customers with both “wet and dry” shopping options ranging from a wide assortment of live, fresh and chilled produce, such as seafood, meat and vegetables to packaged, processed, frozen and/or preserved food products as well as general merchandise, including toiletries and essential household products. Sheng Siong has also been developing a selection of house brands to offer customers alternatives to national brands at substantial savings, and to date, has over 900 products under more than 17 house brands.

 

 

 

In 2014, Sheng Siong also started its online shopping platform for groceries, which offers e-commerce services in selected postal districts in Singapore. Sheng Siong’s first overseas store in Kunming, China, commenced operation in 2017.

 

 

 

To support its retail operations, Sheng Siong has been operating from its corporate headquarters and purpose-built warehousing and distribution Centre at Mandai Link in July 2011. And since January 2016, Sheng Siong has attained ISO 22000:2005 Food Safety Management System certification for our processing facility where we process seafood, meat and vegetables and repackage dried food, frozen food and fruits.

 

 

 

 

Investment thesis

 

In times of volatility, Sheng Siong Group (SSG) offers certainty over its earnings outlook backed by a resilient business model. With nearly 100% exposure to Singapore, and selling mainly consumer staples, we expect SSG’s business to be relatively unaffected by the on-going trade spat in other parts of the world. Looking ahead, we expect the 5.6% SSSG recorded in 1Q18 to be sustainable for FY18 driven by a confluence of one-off factors but to normalize to 2%-3% in FY19. For new stores, SSG was successful in two new store bids, which are expected to commence operations in 2Q18. Management also noted tender pipeline remains healthy in FY18, and will continue to bid rationally for new HDB stores in re-developed and new neighbourhoods, as well as expand in HDB estates without SSG’s presence.

 

 

 

Investment summary

 

 

 

·         Resilient business model – In times of volatility given the trade tensions between U.S. and China as well as Europe, we believe Sheng Siong Group (SSG) offers certainty over its earnings outlook backed by a resilient business model. With nearly 100% exposure to Singapore (except for a new start-up store in China), and selling mainly consumer staples, we expect SSG’s business to be relatively unaffected by the on-going trade spat in other parts of the world. Note that its new store in Kunming, China, contributed 0.8ppt to 1Q18 total revenue growth, but recorded S$0.1m loss in 1Q18, which in our view, remains insignificant.

 

 

 

·         New stores to drive growth ahead – As highlighted previously, we expect the 5.6% same stores sales growth (SSSG) recorded in 1Q18 to be sustainable for FY18 due to several factors including: 1) expanded Tampines 506 store (10k sqft to 25k sqft) that only opened in Jun 17, 2) spillover of customers from closure of The Verge store to another nearby store at Jalan Berseh, as well as from closure of Woodlands 6A to other stores in Woodlands. That said, without these one-off factors, we expect SSSG to normalize to ~2% from FY19 onwards. According to Euromonitor, grocery retailers in Singapore are forecasted to record a CAGR of 1.5% in sales for the period 2017-2022, which is in-line with our expectations. In addition, with healthy tender pipeline in FY18, we expect SSG to continue to bid rationally for new HDB stores in re-developed and new neighborhoods, as well as expand in HDB estates where SSG currently does not have presence in. While SSG offers unexciting growth, the defensive nature of its business model translates to stable cash flow, which is crucial amid uncertain global economic outlook.

 

 

 

·         On abovementioned reasons, we continue to like SSG for its resilient business model supported by strong cash flow generation and solid balance sheet.

 

 

 

·         Higher-than-expected GPM.

 

 

 

·         More-than-expected new store openings.

 

 

 

·         Expect positive surprises from new stores in China.