Sheng Siong upgraded by Daiwa on more stable outlook

Sheng Siong supermarket in SingaporeSheng Siong supermarket in Singapore

Daiwa upgraded Sheng Siong to Hold from Underperform, pointing to both a more stable outlook and a lack of catalysts.

“Sheng Siong’s operational execution remains solid in our view, while some of the risks we had been previously concerned with (tax hikes, soft consumption trends, new store momentum) look to have been alleviated,” Daiwa said in a note earlier this week. “But we believe its shares are fairly valued given the company’s earnings growth outlook.”

It said it expected same store sales momentum to remain positive and raised its 2018-19 earnings per share (EPS) forecasts by 5 percent to factor in new stores’ contributions and better same-store trends. That spurred a target price increase to S$0.95 from S$0.88.

The overall competitive environment for the supermarket operator has stayed “rational,” Daiwa said, noting online players Amazon and Redmart have avoided aggressive price discounting.

“We had previously highlighted that Sheng Siong’s positioning – as a low-cost operator in suburban areas with a focus on fresh groceries – could better insulate its business relative to peers,” it said.

But it added that it saw “limited scope” for the stock price to re-rate as despite market share gains from Dairy Farm, that company was still competing for new store space in the near term. Contributions from Sheng Siong’s China supermarket were also likely to remain immaterial for the near term, it said.

The stock ended Thursday up 1.54 percent at S$0.99.