Our recent grouse about Sheng Siong - its lack of new store growth over the past years - is about to change. Sheng Siong added a new store in a dormitory in December and its new Tampines site will open in January. Opportunities to open more stores are emerging as well.
Government initiatives to provide holistic living quarters for foreign workers are a catalyst for store growth. Potential closure of competitor stores is a bonus. We believe store growth can surprise in 2015-16 and we raise FY15-16 EPS by 4-7%, which increases our target price (22x CY16 P/E, average 12m forward P/E). The key catalyst is a return of store growth in Singapore, which will mute concerns over the risk of throwing capital into China growth plans.
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