Lowered GFA expansion guidance. We received a quick update from management lowering their previous new store openings guidance to 10% increase in GFA. Accordingly, we decreased our 2013 GFA expansion estimates from 8% to 4.5%, representing 18,000 sq ft new GFA. We also trimmed our FY13F to FY15F earnings forecast to between 2.8% and 4.1%. We remain positive that the bumper store openings from FY12 will carry forward strong earnings for this year and reiterate Sheng Siong’s defensive earnings nature. We lower our TP to SGD0.74 and peg our valuation multiple to 25.8x, a 10% discount to Dairy Farm’s 5-year P/E average of 28.7x. Maintain BUY.

Difficulties in procuring new outlets. Sheng Siong has been unsuccessful in securing bids and failed in its negotiations to procure new retail spaces due to fierce competition from the bigger supermarkets. However, they remain optimistic and aim to open around 3 new outlets in the 2nd half, or a total GFA of 15,000- 20,000 sq ft, vs. its previous guidance of 10% increase in GFA. However, we think this will be temporary. Our FY14F and FY15F GFA expansion forecasts remain unchanged at a conservative average of 21,500 sq ft increase per year. SSG is at 2% YoY as of 1Q13.

Revenue and margins could surprise. According to the Singapore retail sales index, supermarket sales is the 2nd best performer after Food and Beverages. Year-to-date, supermarket sales have increased by an average of 6.9% YoY, boosted by a particularly strong Chinese New Year season when sales increased 24.6% YoY. Management is now focusing on increasing sales per store by converting its existing stores into 24-hour outlets. Three additional stores have already been converted into 24-hour outlets since 1Q13.

Remains a safe haven, maintain BUY. Valuations remain relatively attractive at 22.7x FY13F P/E versus supermarket peer average of 31.9x P/E, inclusive of a 3.9% dividend yield. Strong cost management as seen in its higher margins compared to peers, as well as contributions from 8 new store openings in FY12 will act as strong support to Sheng Siong’s earnings this year. Maintain BUY.

Source: Maybank Kim Eng Research - 5 Jul 2013