ON the back of rising inflation,Sheng Siong Group : OV8 0%will see an increase in demand for its groceries, as consumers switch to more economical home-cooked meals, rather than spend on dining out, analysts said.
In a Wednesday (Jul 13) report, UOB Kay Hian (UOBKH) upgraded its call on Sheng Siong to “buy”, while raising its target price for the supermarket operator to S$1.91 from S$1.69 previously. This represents a 19.4 per cent upside over Sheng Siong’s share price, which was trading flat at S$1.60 as at 10.10 am.
Sheng Siong Group should continue to enjoy healthy groceries demand, said UOBKH analyst John Cheong.
The easing of Covid-19 restrictions, which has led to a moderation in demand, will be offset by a boost in inflation-induced demand for the value-for-money supermarket chain, as consumers choose to dine at home to reduce excessive spending, analysts said.
RHB analyst Jarick Seet said that the inflationary pressures will likely lead Sheng Siong to continue to chart strong numbers in Q2 2022, despite potential slowdowns in the June holiday period, where more potential consumers may travel abroad instead.
In a separate Wednesday report, RHB maintained “buy” on Sheng Siong with an unchanged S$1.78 target price.
UOBKH’s Cheong noted that in the latest retails sales index published by Singstat on Jul 5, supermarkets’ and hypermarkets’ retail sales continued to record a 0.6 per cent month-on-month growth. This was a “noteworthy” achievement as it occurred amid a major relaxation of Singapore’s Covid-19 public health measures, he added.
Furthermore, the analysts said that despite rising costs, they believe that this time around, the group should still be able to preserve its gross profit margin.
Cheong said: “In addition, the demand for higher margin fresh products should continue to grow as these are the main products required for cooking at home.”
Based on the “strong earnings momentum” that it believes will continue into the rest of the year, UOBKH has converted Sheng Siong’s Q1 2022 earnings into an annual rate for calculation. It has raised its estimates for Sheng Siong’s revenue and earnings by 4 per cent each for the 2022 to 2024 period.
In the next 3 to 5 years, Sheng Siong expects to continue to expand, with a target to open 3 to 5 stores per year and reach areas where it does not yet have a presence.
RHB’s Seet said: “This counter presents a solid defensive option – especially in such volatile market conditions.”$SHENG SIONG GROUP LTD(OV8.SI)$
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