Reiterate BUY with an unchanged TP of SGD2, 17% upside with c.4% FY23F yield. We continue to like Sheng Siong for its defensive qualities, strong cash flow-generating ability, net cash balance sheet, attractive dividend yields, and stable earnings driven by its store network and margin expansion. The stock is trading near its forward P/E mean of 19x compared with our target valuation of 21x FY23F P/E, which is at +1SD from the mean.
Singapore supermarket retail sales continued to normalise, within expectations. Singapore retail sales ticked up by 12.7% YoY in February. As 2022’s Lunar New Year occurred in early February, most of the consumption effect related to the festive season would have kicked in in Jan 2022. Collectively, Jan 2023 (-0.8% YoY) and Feb 2023 (+12.7% YoY) retail sales have improved YoY. Supermarket retail sales normalised from levels recorded in Jan 2023 (-2.7% MoM) and Feb 2022 (-3.6% YoY) as expected. Feb 2022 supermarket retail sales represented a high base, when limits were still imposed on group sizes and workplace capacities, before social distancing measures were lifted on 26 Apr 2022. As such, the supermarket retail sales base should normalise and come down from the high levels at around May 2023.
Improved FY2023 Budget packages to support revenue. We believe SSG’s revenue will be supported by the improved budgetary measures (GST Voucher Scheme (GSTV), Assurance Package (AP) scheme for all Singaporeans, and Community Development Council (CDC) vouchers). Lower- to middle-income Singaporeans will receive another SGD150-200 in 2023 (then SGD100-150 in 2024) under GSTV. Also, eligible Singaporeans will get a SGD300-650 increase under the AP period of 2022- 2026, while SGD100 in additional CDC vouchers will be given to households in 2024. This should shore up supermarket sales going forward.
Strong supply of new outlets ahead. We believe SSG is on track to achieve its target of 2-3 new outlets per year. Housing Development Board’s outlook for new supermarket leases in new and matured estates for the rest of 2023 now stands at six (at Tampines, Clementi, Bidadari, Eunos, Sengkang and Fernvale), with five planned for 2024. SSG has already successfully secured its bid for one new store in Jalan Satu, and has continued to bid for more outlets since.
ESG. As SSG’s ESG score is 3 out of 4 – on par with our country median – we apply a 0% discount or premium to its intrinsic value to derive our TP.
Key downside risks include slower-than-expected store openings, lower sales demand and per square feet traction, and the inability to sustain GPM at current levels.
