• Singapore supermarket and hypermarkets sales were still in healthy growth mode y-o-y in 2M21 despite the high base.
• We think that bodes well for 1Q21F. We forecast Sheng Siong's 1Q21F net profit of S$29.7m (+3.3% y-o-y) as we think revenue could rise by at least 6% y-o-y.
• Although earnings could normalise in FY21F, we still like Sheng Siong. We reiterate our ADD call, with a target price of S$1.88 (25x CY22F EPS, 2.5 standard deviation above long-term mean).

Singapore Supermarket and Hypermarket Sales Continue to Grow

• According to Singapore’s Department of Statistics (SingStat), supermarket sales and hypermarket sales rose 7.3% in Jan 21 and 13.6% y-o-y in Feb 21. This was a pleasant surprise, considering the high base of 9.4% in Jan 20 and 15.4% in Feb 20. We think that this was because most Singaporeans still work from home.
• In addition, we believe that sales were likely elevated during the Chinese New Year period in Feb 21 as most Singaporeans were domestically bound due to travel restrictions.

Sheng Siong Group 1Q21F Preview

• 1Q is historically a strong quarter due to the CNY celebrations. We estimate Sheng Siong (SGX:OV8)’s revenue rose 6% to S$348.5m in 1Q21F; lower than the Singapore supermarket and hypermarket average 2M21 sales growth of 10%, as we opt to be conservative.
• There could be a y-o-y shrinkage in Sheng Siong’s Mar 21 sales trends given that there were no exceptional lockdowns in 1Q21.
• We expect 1Q21F gross profit margin of 27.4% (1Q20: 27%) as Sheng Siong improves its sales mix and supply chain efficiency. We estimate Sheng Siong's net profit increased 3.3% y-o-y to S$29.7m in 1Q21F (vs. our FY21F net profit decrease of 21.7% y-o-y). Our forecasts are intact as revenue growth could decline as the country normalises from the impact of COVID-19.

Eyes on New Shops in 2021 to Catalyse Earnings

• According to Singapore’s Housing Development Board (HDB) in Mar 21 there will be five open bids for supermarket units with Penjuru Dormitory store (inactive since 1Q20) in Oct 20. We forecast store acreage addition of 25k in FY21F and 20k in FY22F for Sheng Siong.

Reiterate ADD

• While earnings should normalise in FY21F, we still think Sheng Siong deserves to share in Singapore’s supermarket space.
• We reiterate our ADD call on Sheng Siong with a target price of S$1.88, based on 25x CY22F EPS, close to 2.5 standard deviation above Sheng Siong’s 2012-19 mean.
• Potential re-rating catalysts include better SSSG, more new store wins and higher dividends.
• Downside risks include deeper penetration of online grocery shopping.

Source: CGS-CIMB Research - 13 Apr 2021