Sheng Siong Investment Research

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February 23, 2012

SINGAPORE EQUITY Investment Research
DMG & Partners Research CONSUMER
Melissa Yeap +65 6232 3897 melissa.yeap@sg.oskgroup.com Terence Wong, CFA +65 6232 3896 terence.wong@ sg.oskgroup.com Retail Sheng Siong is Singapore’s second largest grocer, holding an 18% share of the local market. It owns 24 outlets and three wet market stalls across the island nation, located in the HDB heartlands. Stock Profile/Statistics Bloomberg Ticker STI Issued Share Capital (m) Market Capitalisation (US$m) 52 week H | L Price (S$) Average Volume (‘000) YTD Returns (%) Net gearing (%) Altman Z-Score ROCE/WACC Beta (x) Book Value/share (S¢) Major Shareholders (%) SS Holdings Hock Eng Lim Hock Leng Lim 34.6 12.3 12.3 SSG SP 2,996 1,384 685 0.575 0.310 9,575 12.5 Net Cash Na 2.7 na 10.0

Initiation of coverage

Private Circulation Only

SHENG SIONG GROUP

NEUTRAL Price Previous Target S$0.495 n/a S$0.500

Steady dividends, but upside capped
We initiate coverage on Sheng Siong with a NEUTRAL rating and TP of S$0.50, based on 15x FY12F earnings. The stock offers investors: 1) A unique proxy into Singapore’s resilient supermarket business, one characterised by a strong balance sheet and free cashflows, 2) Management’s commitment to a 90% payout ratio in FY12 translates into a decent 6% yield, 3) Recent move into brand new Mandai Link HQ is expected to boost operating margins as well as provide the much needed infrastructure to back a larger network of stores. Resilient business. Sheng Siong holds an 18% market share in Singapore’s resilient S$4b supermarket industry, ranking it as the second largest grocer in the nation, behind Dairy Farm (which owns Cold Storage, Giant and Shop N Save stores). It’s stores are strategically located in the HDB heartlands, where it targets the wallets of the low-to-mid end masses with its affordably priced goods. It enjoys a strong brand reputation, having bagged the “Superbrand” award for the past four years (2008-11) and has been awarded “Superbrand” status. It even has its own variety TV series, dubbed “The Sheng Siong Show” which started airing on Mediacorp in 2007, and has just concluded its ninth season. Earnings to be driven by new store openings. The Group has been the fastest growing grocer on the island, registering a sales CAGR of 13%, between 2006-10 vs rivals NTUC at 9% and Dairy Farm at 5%. This has helped it to grow its market share from 13% in 2006 to 18% in 2010. We expect future earnings to be driven by new store openings in FY12/13 (+20,000sf per annum vs. management’s target of +30,000sf). Our FY12 and FY13 earnings estimates are currently 7% above and 14% below street estimates. FYE 31Dec (SGDm) Turnover (S$m) Net profit (S$m) Core PAT % Chg YoY Consensus (S$m) EPS (S¢) DPS (S¢) Div Yield (%) ROE (%) ROA (%) P/E (x) P/B (x) Source: Company and OSK|DMG Estimates

Share Performance (%) Month 1m 3m 6m 12m Absolute 4.2 23.8 4.2 na Relative (0.9) 10.4 (4.1) na

6-month Share Price Performance

FY09 625.3 33.6 30.5 63.2 2.9 na na 29.5 16.5 16.8 5.0

FY10 628.4 42.6 33.2 27.0 3.7 6.4 nm 66.7 24.3 13.2 8.8

FY11F 574.7 31.2 31.2 (26.9) 36.0 2.3 2.1 4.2 23.4 13.7 21.3 5.0

FY12F 637.8 45.1 33.8 44.8 41.6 3.4 3.0 6.1 32.7 18.7 14.7 4.8

FY13F 699.1 41.6 41.6 (7.9) 48.9 3.1 2.8 5.6 29.2 17.3 16.0 4.7

DMG Research OSK

DMG & Partners Securities Pte Ltd may have received compensation from the company covered in this report for its corporate finance or its dealing activities; this report is therefore classified as a non-independent report. Please refer to important disclosures at the end of this publication. of this publication DMG Research OSK See important disclosures at the end of this publication DMG Research 1

TABLE OF CONTENTS

Company description Retail Network Products Singapore’s Grocery Retail Industry Investment Merits Investment Risks Earnings Outlook Valuation Financial Tables Disclaimer

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