The research team at OCBC Investment Research is keeping its “buy” recommendation on supermarket operator Sheng Siong Group
“We view Sheng Siong as a defensive play amid rising inflation and slower economic growth. We believe demand for groceries will continue to normalise in 2024, but could be potentially supported by a shift in consumption patterns towards a focus on “value for money” due to inflationary pressures and a higher cost of living,” say the research team.
Moreover, grocery sales could be supported by Singapore Budget 2024’s announcement on inflation offset measures such as the CDC vouchers.
However, January 2024 saw supermarket and hypermarket sales decline by 6.5% y-o-y, according to the Singapore Department of Statistic. Overall, sales of supermarkets & hypermarkets have seen a declining y-o-y trend since May 2022, normalising from its elevated sales during the Covid-19 period.
Meanwhile, shares in Sheng Siong have declined by about 4% ytd, likely due to concerns over its slower revenue growth and margin expansion in 4QFY2023 ended December 2023. The group has also renewed electricity contract for FY2024 at lower tariffs and continues to roll-out more self-checkout machines at its stores to improve labour productivity.
In FY2023, only two new stores were open, due to slower pace of tendering exercise for commercial units by the Housing Development Board (HDB). In early 2024, the group had already won two tenders. Coupled with a robust pipeline of 10 units up for tendering, the research team believes that Sheng Siong’s store opening will reaccelerate this year, reaching its target of opening at least three new stores in 2024.
As at 12.30pm, shares in Sheng Siong are trading at $1.54.
