Will Sheng Siong enjoy another windfall year?
Research teams cut their targets on Sheng Siong’s shares, as the pandemic beneficiary’s sales could inch down soon.
- Sheng Siong Group (SGX: OV8) share price stayed flat at S$1.57 per share
- Analysts lowered their price targets, preferring a wait-and-see approach
- Its earnings this year might see a mild dip from a high base
- Trade Sheng Shiong shares, long or short, with an IG account
Tepid stock performance
A week after reporting stellar earnings, Singapore supermarket operator Sheng Siong on Wednesday saw its shares trading unchanged day-on-day at S$1.57 as of 12:22 SGT.
Out of seven analysts, four rated the stock ‘hold’ while the other three recommended ‘buy’, according to Bloomberg data. Their average target price was S$1.75, according to Bloomberg data.
Sheng Siong’s 2020 results beat market forecasts. Full-year revenue rose 41% to S$1.4 billion while net profit climbed 83% to S$138.7 million, thanks to elevated demand during the Covid-19 pandemic.
It recommended a final dividend of S$0.03 per share, bringing its total dividend for 2020 to S$0.065 per share.
Is Sheng Siong still a defensive play?
Social distancing and at-home dining will likely remain this year, which should support supermarket sales growth in the second to third quarters, OCBC analysts wrote. They recommended ‘buy’, but lowered their fair value estimate to S$1.79.
Similarly, RHB cut its target price to S$1.70. It believes Sheng Siong’s strong sales and profitability could rationalise in 2H21 from the record levels in 2020, as the world gradually returns to normal amid successful vaccine deployment.
RHB downgraded the stock to ‘neutral’, waiting to see how the vaccination rollout and lifting of travel curbs will affect the company’s sales.
DBS Group likewise foresees 2021 earnings taking a ‘slight dip’ but staying elevated compared to pre-Covid years, driven by higher store count and stronger sales per square foot. Analyst Alfie Yeo, maintained a ‘buy’ call but trimmed his target to S$1.77.
Meanwhile, CIMB reiterated ‘add’ and a S$1.88 target, as it still sees the shares as a defensive play. This was after CIMB penciled in an earnings shrinkage this year given the high base in 2020.
CIMB’s research team believes Sheng Siong still ‘deserves to trade at a premium over its historical average due to its strong balance sheet and strong market share in Singapore’s supermarket space’.
What will drive its performance this year?
Looking ahead, revenue growth will be led by new store openings, but if competitors offer excessive discounts and promotions, Sheng Siong will ultimately see lower margins, DBS noted.
Yeo added that Sheng Siong has a strong store network and logistics chain, which makes it a potential takeover target for online players. This comes as online players like Alibaba’s Hema and Amazon Wholefoods are taking the online-to-offline route and operating physical stores.
CIMB projected 2021 earnings per share to decline by 21.7% from 2020, as revenue per square feet may gradually shrink while Singapore recovers from the pandemic’s impact. Thereafter, CIMB expects a 3.7% pickup in earnings per share for 2022 on the back of new store additions.
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