Sheng Siong Group - CGS-CIMB Research 2022-10-28: A Shelter In Times Of Uncertainty

Sheng Siong Group - A Shelter In Times Of Uncertainty

  • Sheng Siong (SGX:OV8)’s 3Q22 net profit of S$33m (+2% q-o-q, -5% y-o-y) was largely in line with expectations. 9M22 net profit formed 78% of both our and Bloomberg consensus FY22F.
  • Sheng Siong's 3Q22 revenue declined to S$333m (+5% q-o-q, -4% y-o-y) on lower same-store sales (-7.2% y-o-y) with elevated grocery demand (from tight COVID-restrictions last year) tapering off. Gross profit margin expanded to 29.4% (+0.4% points y-o-y) due to growing contribution from higher margin categories (fresh food, house brands), but this was offset by higher operating expenses as energy costs trended higher. Net margin remained flattish y-o-y at 9.9%.
  • The heightened inflationary and interest rate environment could weigh on Singapore’s economic growth. Given Sheng Siong’s focus on providing value-for-money offerings, we believe it is well-positioned to capture potential shifts in consumer behavior, including:
    1. higher grocery demand as consumers dine out less amidst constrained disposable income and
    2. downtrading to cheaper private label products (which offer 10- 15% higher gross profit margin vs typical branded FMCG products).
  • As of 3Q22, Sheng Siong notes that contribution from private label sales rose to ~7% (FY21: 6%).
  • We expect gross profit margin to remain stable at 29.5% in FY23F, with Sheng Siong’s continued strategy of increasing sales mix from higher margin categories (fresh food, private label). Management has not observed meaningful changes in competitive landscape year-to-date, and has been able to keep up with pricing campaigns of competitors thus far.
  • On store openings year-to-date, Sheng Siong netted two new stores as of end-3Q (adding 25k sq. ft. sales area), with another recently added in Oct. There are 13 new HDB locations up for tender over the next 18 months, supporting Sheng Siong’s goal of 3-5 outlet openings per annum.
  • Reiterate ADD as we view Sheng Siong as a defensive play amid the current backdrop of rising inflation and potential economic slowdown. We fine-tune our FY22-24F EPS forecasts, and keep our target price for Sheng Siong at S$1.85, still based on 21x CY23F P/E (10-year historical mean).

Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @

ONG Khang Chuen CFA CGS-CIMB Research | Kenneth TAN CGS-CIMB Research | 2022-10-28

Previous report by CGS-CIMB:
2022-07-29 Sheng Siong - Another Quarter Of Record Gross Margin.

Price targets by 4 other brokers at Sheng Siong Target Prices.
Listing of research reports at Sheng Siong Analyst Reports.

Relevant links:
Sheng Siong Share Price History,
Sheng Siong Announcements,
Sheng Siong Dividends & Corporate Actions,
Sheng Siong News Articles

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