Maybank Kim Eng started Sheng Siong Group at Sell with a S$1.33 target price, saying the grocery store operator’s “best days are over.”
“It’s unlikely to see another windfall year as more people will dine out as the ban should be lifted in the fourth quarter of 2021 once vaccination rate passes 80 percent in the city. Also, near-term catalysts are limited as new store opening visibility is low,” the brokerage said in a note Saturday.
The brokerage forecast 2022 earnings per share (EPS) would decline 7 percent on-year, citing a Euromonitor projection supermarket sales would decline by a 5 percent compound annual growth rate over 2020-2023 as supermarket sales normalise post-pandemic and as consumers switch to dine-out options.
“We believe SSG, being the second largest supermarket operator in Singapore, is vulnerable to such industry headwinds. At the same time,
the pandemic has also accelerated food delivery, which could change consumers’ dining habits post-Covid,” the note said.
In addition, the pandemic’s disruption to the construction industry, Sheng Siong currently has no successful shop tenders, and there is limited visibility on new store openings, the note said.
The stock is trading at 23 times 2022 price-to-earnings forecasts, a 65 percent premium to Asian peers, the note said.
“We prefer a better entry point and/or take profit on strength given its near- to medium-term earnings downcycle, as well as potential
market rotation to post-Covid beneficiaries,” Maybank Kim Eng said.
The note advised switching to Thai Beverage and/or ComfortDelGro for reopening plays.
Shares of Sheng Siong were down 1.9 percent at S$1.54 at 1:10 p.m. SGT.