Analysts have mixed perspectives on Sheng Siong following the release of the company’s 1HFY2024 results ended June.
Citi Research and RHB Bank Singapore have maintained their “buy” calls, while CGS International (CGSI) and DBS Group Research have maintained their “add” and “hold” calls respectively.
In his July 30 note, RHB Bank Singapore analyst Alfie Yeo notes that the group’s 1HFY2024 earnings have come below expectations and has lowered his target price to $1.86 from $1.96 previously.
In 1HFY2024, Sheng Siong’s revenue saw a 3.3% y-o-y increase at $714 million, while earnings rose 6.5% y-o-y to $70 million.
Despite this, the analyst adds that the group’s topline was within expectations, with growth driven by Sheng Siong supermarket which saw a 6% y-o-y increase due to a longer run up to the Lunar New Year.
Additionally, the group’s gross margin in 1HFY2024 was “in line” at 30.1%, up 0.4 percentage points (ppt) from 29.7% last year resulting from a better sales mix.
However, earnings before interest and taxes (ebit) was below expectation at $81 million, up by 6.1% y-o-y due to higher-than-expected administrative costs led by elevated staff variable bonuses.
The analyst writes: “We remain upbeat on Sheng Siong on the back of steady consumption demand and store opening opportunities going forward despite missing our 1H24 expectations slightly due to staff costs.”
As such, the analyst has lowered his FY2024 - FY2026 earnings by 6% - 7% after imputing staff costs at the current run rate.
See also: RHB still upbeat on ST Engineering but trims target price by 2.3%
As of now, an interim dividend per share of 3.2 cents has been declared, amounting to approximately 70% of the group’s payout ratio.
Similarly, Citi Research analyst Chong Zhou remains positive on Sheng Siong, expecting the group’s 1HFY2024 margin to “hold up well”.
According to the analyst, the group’s 2QFY2024 gross profit margin reached a record high of 30.9%, reflecting an increase of 0.2 ppt y-o-y and 1.5 ppt q-o-q.
He adds: “While house brands remain at approximately 8% of total revenue, the significant sequential margin improvement is primarily driven by the increase in fresh (approximately high 40%) in 2QFY2024.”
The analyst also highlights that Fresh and House Brands experienced a 10% - 15% higher margin as compared to Non-Fresh and National Brands respectively.
“While some may question the sustainability of gross profit margin improvement, we believe that our current gross profit margin estimation of 30.1% for FY2024 to be reasonable given that Sheng Siong’s annualized gross profit margin has always been on the rise y-o-y over the last ten years,” says the analyst.
While the analyst’s current FY2024 estimate indicates that gross profit margin is likely to fall on a sequential basis in 3QFY2024, he believes this to be reasonable following the more-than-expected increase in the number of new stores.
For more stories about where money flows, click here for Capital Section
To this end, the analyst has left his target price for Sheng Siong unchanged at $1.68.
Similarly, CGSI analysts Ong Khang Chuen and Kenneth Tan also like Sheng Siong for its “robust” store opening pipeline in FY2024.
As of year-to-date, the group has since opened four new stores and expanded the retail floor space of one of its existing stores, outpacing its store count expansion in the past 3 years.
As such, the analysts have raised their forecasts for the group’s net store openings in Singapore for FY2024 to six from four previously.
They add: “Sheng Siong sees a robust supply pipeline for new stores in 2024. It is still awaiting the results of three tender submissions and expects the Housing Development Board (HDB) to make available seven additional supermarket sites for tender in 2HFY2024.”
The new tenders are set to include some sites that will be up for re-tendering, as certain competitors look to consolidate their presence in Singapore.
Additionally, the analysts note that Sheng Siong also sees opportunities to acquire commercial premises to support its store expansion plan, given its strong net cash position of $350m as at June 30.
On the other hand, DBS Group Research has maintained their target price of $1.62.
Despite the group’s 1HFY2024 revenue and earnings coming in-line with its expectations, the team notes that the supermarket industry has most likely “shrank” in 2QFY2024.
According to the Singapore Department of Statistics's supermarket retail sales value data, April and May recorded a decline of 4% and 2% respectively in 2024.
This came alongside a 4% y-o-y increase in outbound travel in June.
“Thus, Sheng Siong - which reported growth during the same period - likely saw market share expansion, in our opinion,” says the team.
Moving forward, the team expects outbound travel headwinds to taper off towards 4QFY2024 with outbound travel volume almost back to pre-Covid levels which would help improve the overall growth trajectory of Sheng Siong.
As at 11.53am, shares in Sheng Siong are trading at 2 cents lower or down 1.30% at $1.52.
