Sheng Siong Group Limited is a Singapore-based investment holding company. The Company, through its subsidiaries, is engaged in the supermarket operations, and trading and wholesale importers of consumer goods. The Company is a retailer with approximately 70 stores located all across the island. The Company's chain 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, fruits and vegetables to packaged, processed, frozen and/or preserved food products as well as general merchandise, including toiletries and essential household products. The Company offers over 1,500 products under approximately 23 house brands. It has an allforyou.sg online shopping platform for groceries, which offers e-commerce services in almost all postal districts in Singapore. Its wholly owned subsidiaries include Sheng Siong Supermarket Pte Ltd and C M M Marketing Management Pte Ltd.
Investment Overview
Excellent track record of supply chain management and tender bidding. Sheng Siong Group (SSG) has consistently delivered y/y gross margin expansion, leveraging its excellent sourcing capabilities to procure products at competitive prices. In addition, it has also consistently delivered store count growth, having secured 44% of total HDB tenders for the past five years. Together, these two factors have ensured the company is able to deliver steady revenue and profitability growth since 2013, except for 2021 due to an abnormal, COVID-led high base.
Maintain our above-consensus earnings growth of 8%/5% in FY24F/25F, respectively. For FY24F, we believe the company could deliver above-norm 8% growth, largely on gross margin expansion, lower utility costs, and higher net interest income. Moving into FY25F, we believe the continued gross margin expansion and surge in new store count would more than offset lower net interest income and support our above-consensus 5% bottom-line FY25F growth rate.
Look out for upcoming HDB tender results. With stabilising operating costs, we believe the next driver of growth will be new stores. Given the current landscape where Giant and Hao Mart are streamlining their footprints, Sheng Siong is uniquely positioned to rapidly expand its network. YTD, Sheng Siong has secured four new stores. As of the time of writing, six outstanding tenders are pending award, of which Sheng Siong has bid for four. With its track record, we are optimistic it could secure at least two additional stores, ending the year with six new stores secured.
Upgrade to BUY from HOLD with a higher revised TP of SGD1.80 (from SGD1.62). We retained our above-consensus earnings estimates and applied a higher 18x forward PE (previous: 17x), +1 standard deviation of its average four-year forward PE, on its FY25F earnings. We believe the higher valuation peg is justified, given the lower equity risk premium with the falling interest rate and higher probability of a hike in the dividend payout ratio.
Risks
Should the dividend payout hike not materialise, the stock may continue to trade sideways.
Topic
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