Will new store openings drive Sheng Siong's share price higher?

In a Monday report, analyst Juliana Cai says the lower-than-expected 4Q sales figures from Sheng Siong could represent some loss of market share to other supermarket operators or even e-commerce players, while the group’s relatively-unchanged dividend payout ratio has slightly disappointed as well.

In spite of the group’s plans to open four more new supermarkets in 1H18 and win three more supermarket sites this year, the analyst says she is not optimistic on the group’s total sales outlook, as the closure of its stores at The Verge and Woodlands in 2017 could cause a 5% dip in revenue in 2018.

As such, Cai has lowered FY18-19F earnings projections by 1-2% to factor in higher start-up losses from its maiden store in China, with further expectations of a slowdown in margin expansions given limited upside as guided by its management.

“At the moment, we do not see any major reason for investors to rush to accumulate its shares,” she concludes.

OCBC analyst Eugene Chua however begs to differ, and continues to like the stock for its stability and strong consistent record in operating cash flow generation.

The research house has reiterated its “buy” call on Sheng Siong with a higher fair value of $1.06 from $1.04 previously as the group’s full-year results came in within its expectations.

While Chua acknowledges that Sheng Siong’s new store in China is unlikely to turn profitable in FY18, he expects higher revenue going forward on contributions from the group’s seven new stores as well as same-store sales growth on improved consumer sentiment.

“Gross margin is also expected to remain stable with continued rebates and volume discounts given by suppliers,” adds Chua.

As at 10:21am, shares in Sheng Siong are trading flat at 93 cents, or 4.85 times FY18F book value based on RHB estimates.