Sheng Siong downgraded by CGS-CIMB as earnings missed expectations

Sheng Siong Supermarket in Singapore’s Little India area; taken October 2018.Sheng Siong Supermarket in Singapore’s Little India area; taken October 2018.

CGS-CIMB downgraded Sheng Siong to Hold from Add on expectations of lower earnings growth ahead as first quarter results missed its forecasts slightly.

“While we still like SSG for its healthy balance sheet (end-first quarter of 2019 net cash position of S$86.3 million; zero borrowings) and its ability to maneuver the current competitive climate, we believe the moderate earnings growth could cap near-term share price movements,” CGS-CIMB said in a note last week.

“We opt to stay on the sidelines for now,” it added.

The supermarket chain reported in late April that its first quarter net profit rose 6 percent on-year to S$19.4 million, mainly on the addition of 10 new stores.

The brokerage said that despite net profit coming in at 24.6 percent of its full-year forecast, the gross profit margin surprised by coming in flat, and same-store sales declined 1.0 percent.

The completion of Sheng Siong’s distribution center expansion has been delayed to end-2019 from the first quarter, which along with lower supplier rebates, could weigh on gross profit margin growth, CGS-CIMB said in a note last week. It also pointed to changes to accounting for rental leases.

The brokerage cut its 2019-21 earnings per share forecasts for Sheng Siong by 3 percent to 4 percent on lower gross profit margin forecasts.

It also lowered its target price to S$1.10 from S$1.22.

The stock ended Friday at S$1.04.

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