Supermarket Sales Up Due to Low-base Effect

• Supermarket sales bucked the declining trend again as sales in July rose 0.8% y-o-y, recovering together with the Medical Goods & Toiletries (+1.9%) sub-index. But as the rebound was due to the low-base effect (Jul 18: - 3.4%, 7M18: -1.0%), plus we have yet to see a sustained substitution effect from purchasing ready meals (meals prepared in restaurants, fast food outlets, hawker centres etc.) to home-cooked meals, we think it is too early to call for a recovery in demand for supermarket goods.
• Reiterate SELL on Sheng Siong Group (SGX:OV8), with an unchanged DCF-based Target Price of SGD0.96 (7.8% WACC, 1% LTD).
• Risks to our view include higher-than-expected new stores & SSS contributions and improved consumer sentiment.

August Data Release Is Key

• Year-to-date, the supermarket industry has yet to see a sustained recovery in sales. The sub-index for 7M19 posted -0.6% y-o-y, dragged by poor CNY sales and weak April as well as June sales.
• August sales, which will be released on 11 October, will be the key month to watch as it will reflect the full impact of the Hungry Ghost Festival (1 Aug – 29 Aug). The festival is usually a boost to supermarket operators’ coffers as devotees would purchase large quantities of ritualistic food offerings.

Still Cheery for F&B Industry

• Although consumers held back spending on retail discretionary items, this cautious behaviour has yet to translate into poorer F&B sales. Restaurant operators reported +3.9%, the fourth consecutive month of y-o-y increase in sales. Casual-dining concepts/fast-food outlets and other eateries also reported 5.8% and 1.4% increase in sales respectively.
• We think an increasing number of consumers now see dining out as part and parcel of a hectic lifestyle rather than a luxury option.

No Change to Forecasts, Maintain SELL

• We make no changes to our forecasts as we have adjusted for stronger new stores contribution in the near term. We remain negative on such long-term catalysts.
• Maintain SELL.

Source: Maybank Kim Eng Research - 12 Sep 2019