Sheng Siong upgraded to Buy by RHB on earnings outlook

Sheng Siong supermarket in SingaporeSheng Siong supermarket in Singapore

RHB upgraded Sheng Siong to Buy from Neutral, saying that after channel checks, it now has greater confidence in the supermarket operator’s outlook.

“We think the market has underestimated the near-term growth, given the improvement in consumer confidence,” RHB said in a note on Wednesday.

That was in part due to the brokerage’s visits to several stores.

“Our recent channel checks in some of the new Sheng Siong supermarkets suggest that the company has worked on improving its store display and brand image to appeal to the younger generation,” RHB said. “Due to its mass-market positioning, the old Sheng Siong supermarkets used to give us an old, dirty and messy feeling. However, our recent visit showed us the new stores are much neater and cleaner compared to some of the Giant stores.”

It noted that some Sheng Siong stores have a fairly captive population in some residential estates, saying “bad locations could be good locations.”

While some new outlets aren’t near any shopping amenities such as malls — with the Fernvale Street and Edgedale Plains locations near a river or green spaces — “we believe the group has a captive consumer base, as the people living in these new HDB estates do not have
other shopping alternatives in the vicinity,” RHB said.

The new distribution center extension was now expected to add 20 percent more storage space, up from the initial estimate of 10 percent, RHB noted, adding that, combined with greater automation, should lead to greater efficiencies.

RHB raised its target price on Sheng Siong to S$1.11 from S$0.98.

In late trade on Wednesday, the stock was up 0.52 percent at S$0.975.