• Circuit Breaker and government support packages to buoy sales growth with some cost savings.
• Anticipate higher sales over more grocery vouchers handed out and more Singaporeans staying home.
• Raise FY20-21F earnings by 2-3%.

Sparked by Circuit Breaker

• We maintain our positive stance on Sheng Siong (SGX:OV8) as we see the new Circuit Breaker measures and support packages lifting sales growth along with some cost savings.
• We turn more optimistic on earnings given higher demand for groceries with more grocery vouchers handed out to Singaporeans under the Solidarity Budget. We have also imputed a small portion of cost savings from the supplementary and solidarity support packages. This results in a 2-3% increase in earnings for FY20-21F and a higher target price of S$1.50, based on 25x FY20F PE, pegged to regional peers.
• We continue to like Sheng Siong for its exposure to Singapore grocery consumption and for being well positioned to serve the food requirements of Singaporeans.

Where We Differ

• We do not think online grocery retail will pose a serious threat to Sheng Siong for now as:
  1. Sheng Siong’s target customers are not so much of millennials who are open to online grocery shopping;
  2. warehouses of online grocery retailers are relatively small compared to Sheng Siong’s;
  3. online market is still small and will take time to gain share from brick-and-mortar stores rather than ramp up rapidly.

Potential Catalysts

• We believe that Sheng Siong, with its decent store network and logistics chain, could be a takeover target for online players eventually. Online players such as Alibaba’s Hema (盒马鲜生) and Amazon (Wholefoods) are taking the online-to-offline route and operating physical stores.

Source: DBS Research - 15 Apr 2020