DBS Group Research and Phillip Securities have issued opposing recommendation changes on Sheng Siong Group : OV8 0%, after the supermarket operator last week released its financials for the half year ended Jun 30.

DBS downgraded its call to “hold” from “buy” with a lower target price of S$1.76 compared to S$1.89 previously, as the research house lowered its assumptions for new store openings and cost savings.

The move comes a month after its rating was upgraded to factor in three new store openings in FY2023 and FY2024, with material utility cost savings projected for the latter year.

Such assumptions now seem to be overly optimistic, said DBS analysts on Monday (Jul 31). 

Amid a “slow and competitive” Housing and Development Board tender process, they now say Sheng Siong is unlikely to open any other new stores this year.

The analysts also view the recent bid by NTUC FairPrice for the Punggol Drive outlet as a potential “early indication of aggressive subsequent bids”.

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“Our initial thesis suggested that utility expenses should see a substantial drop in line with a price decline for natural gas from Indonesia (which is a key input cost for electricity in Singapore). Instead, electricity prices have ticked higher while gas prices continue to decline,” they added.

DBS has therefore cut its revenue projections for Sheng Siong by 1.5 per cent in FY2023 and 2.8 per cent in FY2024, resulting in a 3 per cent and 3.1 per cent decline in earnings forecasts for the same periods, respectively.

On the other hand, Phillip Securities remains bullish on the stock and upgraded its call to “buy” from “accumulate” in view of Sheng Siong’s recent share price performance.

Its FY2023 earnings forecasts and target price of S$1.98 remain unchanged, with the latter implying a 10 per cent to 15 per cent discount to stocks’ five-year historical average price-to-earnings ratio.

Phillip’s head of research Paul Chew said he believes new stores as well as a recovery in same-store sales, interest income and higher gross margins will support Sheng Siong’s earnings.

Any improvement will however be offset by higher operating expenses led by utilities and wages, he cautioned.

Shares of Sheng Siong ended Monday unchanged at S$1.64.