Sheng Siong - DBS Research 2023-07-31: Rethinking Store Expansion Plans

• We are taking a more nuanced approach on Sheng Siong (SGX:OV8) with our reassessed view that our previous take on store expansion and utility may have been overly optimistic. 1H23 net profit was down by 3% y-o-y to S$62.3m, on the back of 2% improvement in revenue, driven by new stores (+3.3%). Same-store-sales growth registered a 1% decline.
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• We had previously upgraded Sheng Siong about a month back in June on the assumption of 3 new store openings in FY23F/FY24F and material utility cost savings in FY24F. Both our assumptions now seem to be overly optimistic. The HDB tender process has not progressed as fast as we had expected and we are seeing aggressive bids from the market leader.

Positives

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• Slowdown in same store sales decline – 1H23 same store sales declined at a slower pace of 1% y-o-y vs 2.4% decline in 2H22 indicating that the company is on track to return to flattish same store sales in 2H23.
• Market share gains – Based on supermarket & hypermarket value index from Department of Statistics, the industry shrank by 7-8% for Apr-23 and May-23 due to post COVID dining out effect. Given Sheng Siong grew its top line in a shrinking market, we believe it likely gained market share from existing players. As consumers are downtrading amidst high living costs, we believe it has likely stolen market share from premium supermarkets like NTUC Finest and Cold Storage.

Negatives

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Zheng Feng CHEE DBS Group Research | Andy SIM CFA DBS Research | https://www.dbs.com/insightsdirect/ 2023-07-31 SGinvestors.io

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