Excerpts from analysts' report

Price Target : 12-Month S$ 0.82 (Prev S$ 0.78)

alfieyeo11.14DBS Vickers analysts: Alfie YEO (left) and Andy SIM, CFA

•  Buoyant outlook on store openings, margin and earnings growth

•  Strengthening position in the mass market segment

•  Raise FY15F and FY16F earnings by 5% on higher gross margin expectation

•  Valuations below historical and peer average, maintain BUY with higher $0.82 TP  

300_2lim-hock-cheeLim Hock Chee, CEO of Sheng Siong Group. NextInsight file photo. Positive on store openings, margins and long-term potential.  We remain positive on the stock for three reasons:

1) more stores are expected to open, starting with SSG’s new Tampines store, which is scheduled to open this month; 2) margins have further room to improve through increased bulk handling activities (currently 60% of volume); and 3) the planned opening of its first store in Kunming, China, and e-commerce business offer longer-term growth opportunities.   

SSG is gaining traction in the mass market segment.  SSG has been able to gain traction in the mass market space as NTUC shifts its focus into the premium space.

Mass market NTUC supermarkets have grown less aggressively than premium ones. DFI’s store count has also shrunk in tandem with direct competition from NTUC, leaving SSG in a sweet spot to dominate the mass market segment.   

Raise gross margin assumption. We raise our gross margin assumptions for FY15 and FY16F as we see room for bulk purchasing activities to ramp up. We envisage that supermarkets’ bargaining power will strengthen, with NTUC’s new Joo Koon distribution hub.

We raise both our gross margin assumptions for FY15F and FY16F from 24% to 24.4%. Lower oil prices could also lead to lower utility costs and better operating margins.   

Maintain BUY, with a higher TP of S$0.82. SSG currently trades at 21.3x FY15F PE, below its historical (23x forward PE) and regional peer average (25x forward PE).

In line with our earnings revision, we revise our TP to a higher S$0.82, pegged to 25x FY15F PE and aligned to peer average. Maintain BUY.

Recent story: 
SHENG SIONG: Hurray To Upcoming New Stores, says OSK-DMG



0 #1 Ria 2015-01-14 08:49
Article says "Sheng Siong in a sweet spot to dominate the mass-market." Good! However, I wish its goods don't get more & more expensive compared to other supermarts.

As a stock, I think it's a good defensive one but I think target valuation of 25X is too rich.

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