Sheng Siong primed for growth as flats in new estates drive demand for supermarkets

WHEN residents first started moving into their built-to-order (BTO) flats in Tengah, a new town in Singapore’s west, they were surprised by the lack of key amenities such as supermarkets.

The way analysts see it, the increasing supply of BTO flats could be a catalyst for supermarket operators such as Sheng Siong Group .

Analysts said that new spaces put up for tender by the Housing and Development Board (HDB) will enable the supermarket chain to expand its network of stores across the island. A recent UOB Kay Hian report noted that the statutory board has put out 23,000 BTO flats this year, up 34.5 per cent from 17,100 in 2021.

With more townships being created, there is no lack of tenders for the mainboard-listed Sheng Siong to bid for. (see amendment note)

Sheng Siong, which now runs 69 stores in Singapore, said in its latest business update that it is eyeing outlets in areas where it does not have a presence.

This is likely to bring in new customers immediately, the group said, bringing bumps to its top and bottom lines.

The strategy appears to have worked well for Sheng Siong so far. Its revenue for the third quarter ended Sep 30 ticked up 3.7 per cent to S$345.8 million from S$333.5 million in the corresponding year-ago period, largely driven by new-store sales.

In the first nine months of FY2023, the group’s revenue grew 2.6 per cent to S$1 billion from the corresponding year-ago period.

Sheng Siong won one of the last two tenders put up by HDB, going by results announced on Oct 11. As at Nov 22, the results of three more tenders are pending.

The group is also likely to bid for the five tenders that HDB will put up in the next six months, analysts said.

DBS analysts Chee Zheng Feng and Andy Sim explained: “With a large pool of HDB leases up for bidding and an arbitrary one-third chance of winning – considering two other major competitors, NTUC FairPrice and DFI Retail Group – we believe the company should be able to open three new stores next year.”

As new stores will directly drive top line growth, new openings could bode well for the company’s stock, which has fallen from pandemic highs with the normalisation of earnings post-Covid.

A pandemic-led rush pushed the stock to an all-time high of S$1.85 in August 2020.

On Thursday (Nov 30), it stood at S$1.56, down 5.5 per cent this year.

This gives the stock a market value of S$2.3 billion, and a forward price-to-earnings ratio of 17.3 times.

In comparison, Singapore-listed peer DFI Retail Group, whose businesses include Cold Storage and Giant supermarkets, has seen its value fall 24.2 per cent this year and has a forward price-to-earnings ratio of 19.5 times.

One of the reasons for Sheng Siong’s slower-than-expected growth has been a longer timeline for the tender process for new stores in Singapore.

OCBC Investment Research analysts in October revised its forecasted number of new store openings for 2023 to two, down from three previously.

The research house expects another three new stores in 2024.

However, DBS’ Chee and Sim are optimistic that this longer timeline would normalise to an average of two to three months for the upcoming tenders.

“A short tender timeline would accelerate new store openings and provide an uplift to the company’s top and bottom lines,” they pointed out.

Analysts noted that the company could also enjoy greater demand from high inflation and the looming Goods and Services Tax hike in 2024.

UOB Kay Hian said that the supermarket chain should continue to “enjoy healthy demand” because of its competitive pricing.

RHB Singapore senior research analyst Alfie Yeo said: “We expect Sheng Siong Group’s performance to remain resilient, as it targets the mass-market value segment, which will enjoy effects of downtrading in a soft consumption environment.”

Amendment note: A previous version of this story incorrectly stated that Sheng Siong is Catalist-listed. It is actually listed on the mainboard of the Singapore Exchange.