Its exposure is nearly limited to only Singapore, rendering it unaffected by global trade spats.
Sheng Siong’s business could be a safe haven for investors amidst the intensifying trade tensions between US, China, as well as Europe due to its business model, OCBC Investment Research said.
Analyst Eugene Chua said in a report, “With nearly 100% exposure to Singapore (except for a new start-up store in China), and selling mainly consumer staples, we expect Sheng Siong’s business to be relatively unaffected by the on-going trade spat in other parts of the world.”
He raised that its new store in Kunming, China, contributed 0.8ppt to Q1 total revenue growth, but recorded a $100,000 loss. However, he said that it remains insignificant.
The 5.6% same stores sales growth (SSSG) recorded in Q1 could be sustainable for the year due to its expanded Tampines 506 store (10,000 sqft to 25,000 sqft) that only opened in June 2017. Chua also said there could be a spillover of customers from the closure of The Verge store to another nearby store at Jalan Berseh, as well as from the closure of Woodlands 6A to other stores in Woodlands.
That said, without these one-off factors, SSSG is expected to normalize to around 2% from FY2019 onwards. “According to Euromonitor, grocery retailers in Singapore are forecasted to record a CAGR of 1.5% in sales for the period 2017-2022, which is in-line with our expectations,” Chua said.
In addition, with a healthy tender pipeline, Sheng Siong could continue to bid rationally for new HDB stores in re-developed and new neighbourhoods, as well as expand in HDB estates where it currently does not have a presence in.
“Whilst Sheng Siong offers unexciting growth, the defensive nature of its business model translates to stable cash flow, which is crucial amid uncertain global economic outlook,” Chua concluded.
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