Sheng Siong Group started at Buy by KGI on ‘defensive story’

Sheng Siong supermarket in SingaporeSheng Siong supermarket in Singapore

KGI started Sheng Siong Group at Buy with S$1.24 target price, saying Singapore’s third-largest grocery and household products retailer offers a defensive story for the long haul.

“We believe that SSG’s defensive business model remains attractive for investors seeking respite from global financial market gyrations, as it is relatively sheltered from heightened global economic volatility,” KGI said in a note dated Friday.

“SSG, in our view, is one of the most appealing contenders in the local consumer staple landscape, offering stable cashflows with little to no impact from shocks in the economy.” it added.

It forecast net profit for 2018-20 would grow 6.5 percent, 8.6 percent and 7.1 percent on-year, respectively, amid an increased store count and further margin expansion.

Gross margins have risen by 4.1 percentage points since the 2011 IPO to 26.2 percent as of 2017 from 22.1 percent in 2011, KGI said, pointing to a shift in sales mix toward a higher proportion of fresh produce.

“In our view, margin expansion has not platateaued yet, and will continue modestly alongside steady increase in store count,” KGI said.

It noted the stock offered a 2018 dividend yield of 3.1 percent. KGI forecast Sheng Siong’s dividends would grow 5-9 percent over 2018-20.

Shares of Sheng Siong ended Monday up 0.90 percent at S$1.12.

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