Retail & Supermarket Sales Continue to Disappoint

• Singapore’s Apr 2019 retail sales were down 1.8% y-o-y. Excluding motor vehicles, they were down 1.9% y-o-y.
• After gaining 0.9% in March, supermarket sales resumed their fall, by 1.1%. Food & beverage sales provided the bright spot, up 3.0% y-o-y. This was powered by all categories. See SingStat report in PDF.
• We believe consumer sentiment will continue to weaken amid a slowing economy while supermarket sales will continue to be affected by increasing demand for ready meals in the interest of time.
• Reiterate SELL on Sheng Siong Group (SGX:OV8) with an intact DCF-based Target Price of SGD0.95 (7.8% WACC, 1% LTG).
• Risks to our view include higher-than-expected new stores & SSS contributions and any improved consumer sentiment.

March Outperformance a Blip

• Supermarket and hypermarket sales briefly recovered by +0.9% y-o-y /+1.7% m-o-m in March. April’s sales disappointed again, validating our concern about shrinking basket values. Sales were down 1.1% y-o-y in 1Q19, a continuation of contractions since 2Q18. 4M19 sales were down 1.1%.

Food Therapy Brings Cheer

• Excluding its 1.8% y-o-y drop in Feb 2019, the Food & Beverage Services Index (FBSI) has been growing since May 2018. April’s growth was powered by fast-food, catering and other eating places.
• Fast-food sales have entered their 15th month of consecutive y-o-y growth and other eating places, their 7th. We believe this reflects Singaporeans’ increasing demand for value-for-money convenient ready meals.

A Gloomy Spring Season for Retail Sales

• Although Jan 2019 raised hopes of early Christmas season, retail sales resumed their drop in Feb, with no signs of food retailers, mini-marts & convenience stores and medical goods & toiletries, consumer staple sales were down 2.0% y-o-y in April while discretionaries dropped 2.5%.

… Except for F&B

• The FBSI rose again in other eating places with their 6.2% growth. Still, other eating places continued their 7th consecutive month of growth, by 3.6%.

Winds of Change Has Begun to Blow

• The continued outperformances of fast-food home-cooked meals. We believe this trend has boosted the sales of casual dining, to the detriment of demand for supermarket fresh produce. Restaurant sales benefited less from food deliveries as we think consumers still prefer dine-in experiences to justify their price premiums.
• A report published by driver of out-of-home food purchases, especially at fast food outlets, street stalls/kiosks and via food deliveries.
• We make no changes to our forecasts for Sheng Siong Group, as current trends have been supporting our investment thesis thus far.
• As expected, Sheng Siong Group opened three new stores in May this year, in non-mature HDB estates predominantly populated by young families. We understand that its new stores have SKUs that cater to their needs, which may include healthier options, brand uniqueness, convenience etc.
• While lauding these efforts, we choose to remain conservative on its near-term earnings prospects.

Source: Maybank Kim Eng Research - 13 Jun 2019