• Sales and sentiment seem stable
• Mindful of closures and new stores
• Sustainable margins expected

Local Retail Sales Generally Stable

Singapore’s recently released retail sales data for May-17 depicted a generally unexciting picture. Seasonally adjusted retail sales was up 0.8% YoY and excluding motor vehicles, retail sales was up 0.5%. More relevant to Sheng Siong Group, supermarkets sales were stable with a 0.8% growth YoY. In addition, given the overall domestic and external economic environment, OCBC Treasury Research believes the local consumer sentiment look relatively resilient when compared to the start of the year.

Pending Developments to Expect

Back in 1Q17, the flattish same store sales growth (SSSG) was due to a few stores in areas that were affected by the oil and gas industry, the store in Block 506 Tampines Central that had on-going renovations, and a slowdown in the Woodlands store prior to its closure. Looking ahead, we keep in mind of the following developments:

1. the temporarily closed Loyang store (7.2k sq ft) re-opened in late Feb-17,
2. the 45k sq ft store at The Verge has closed with its last day of operation on 20 Jun,
3. the 41k sq ft Woodlands store will close in Aug,
4. we estimate the new ~11k sq ft store along Woodlands St 12 to open by 3Q.

While the latter new store is located about 1km walk from an existing store at Woodlands St 31 Blk 301, we believe management has traditionally been prudent in their decisions and the store should help to boost presence and capture customers. Opportunities to expand also remain.

Keeping Its Resilience

Amid keen competition and relatively stable consumer sentiment, we expect the above factors seen in 1Q for SSSG to likely continue into 2Q. In addition, the closure of The Verge store will slightly affect 2Q results as well. Nonetheless, we believe achieving an optimal level of revenue per square feet especially for the four new stores opened in 2016 (including 15k sq ft Yishun Junction 9) as well as the larger Block 506 Tampines store (additional 15k sq ft added), coupled with sustainable margins could offer resilience to earnings. With 2Q17 results to be released in the coming weeks, we maintain our BUY and S$1.15 FV.

Source: OCBC Research - 14 Jul 2017