Excerpts from OCBC Investment Research report

Sheng Siong Group (SGX: OV8)

• Sheng Siong Group new store sales were the key revenue driver
• The company expects to open 2 new stores in 2Q22
• Gross profit margin rose to 28.7%
• Potential catalysts • Higher than expected gross profit margins • More than expected new store openings

Sheng Siong Group Results Highlights

Sheng Siong Group 1Q22 revenue rose 6.0% year-over-year (YoY) to SGD358.0m while PATMI grew 15.0% YoY to SGD35.1m. Gross profit margin increased by 1.0 percentage points (ppt) YoY to 28.7% in 1Q22, largely due to improved sales mix. PATMI grew 15.0% YoY to SGD35.1m, broadly in-line with expectations. As of 31 Mar 2022, Sheng Siong has 64 stores in Singapore and four stores in China. No new store was open in 1Q22 but Sheng Siong Group is on track to open two new stores in 2Q22. As Singapore transits to new normal life with Covid-19, we believe 2022 will be a year of normalization for Sheng Siong Group. Demand for groceries is likely to taper off in the coming quarters, partially offset by shift in consumption patterns towards a focus on ‘value for money’ due to inflationary pressure and higher cost of living.

No new store was open in 1Q22

As of 31 Mar 2022, Sheng Siong Group has 64 stores in Singapore and four stores in China. No new store was open in 1Q22. Recall that Sheng Siong won three tenders last year but only opened one new store in 4Q21. Management mentioned that they would open the remaining two stores in 2Q22. Sheng Siong submitted one tender recently and is pending the bidding outcome.

Demand could normalize as Singapore transits to new normal life with Covid-19

Singapore announced further easing of the domestic and border restrictions, with the Disease Outbreak Response System Condition (DORSCON) level adjusted from orange to yellow. From 26 Apr, all workers can return to the workplace, up from the current limit of 75% and capacity limits for events will be removed. Moreover, pre-departure test is no longer required for fully vaccinated travellers to enter Singapore, underscoring Singapore’s commitment to reopen. We believe demand for groceries will taper off in 2022 but could be potentially supported by shift in consumption patterns towards a focus on ‘value for money’ due to inflationary pressure and higher cost of living. Meanwhile, Sheng Siong will continue to source for differentiated and reliable supplies to mitigate inflationary pressure and bring cheaper and more affordable products to customers.

Valuation/Recommendation

We maintain our fair value estimate at SGD1.62 with forecast PE of 19.7 times for FY22.

  You can find the full report here