CIMB Sheng Siong Group

Topics: CIMB, U.S. Securities and Exchange Commission, Securities Commission Pages: 13 (10012 words) Published: February 10, 2015
Retail│Singapore
January 28, 2015

COMPANY NOTE

Sheng Siong Group
SSG SP / SHEN.SI

Market Cap

Avg Daily Turnover

Free Float

US$795.5m

US$1.28m

28.0%

S$1,068m

S$1.68m

1,384 m shares

Current

S$0.71

Target

S$0.84

Prev. Target

S$0.77

Up/Downside

18.4%
Conviction|

|

Growth reignited

Notes from the Field

Our recent grouse about Sheng Siong - its lack of new store growth over the past years - is about to change. Sheng Siong added a new store in a dormitory in December and its new Tampines site will open in January. Opportunities to open more stores are emerging as well. ————————————————————————————————————————

Kenneth NG, CFA
T (65) 6210 8610
E kenneth.ng@cimb.com

Jonathan SEOW
T (65) 6210 8671
E jonathanwp.seow@cimb.com

Company Visit
Channel Check

Expert Opinion
Customer Views

———————————————————————————————————————— Show Style "View Doc Map"

Contents
TWO STORE OPENINGS IN THE PAST TWO MONTHS ... 5
FOREIGN WORKERS’ QUARTERS = GROWTH ENGINE. 6
CHINA IS JUST A SMALL VENTURE ................................. 7 VALUATION AND RECOMMENDATION ............................ 8

Price Close

113.0

0.700

108.0

0.650

103.0

0.600

98.0

0.550

93.0

0.500
200

88.0

150

Vol m

100
50
Apr-14

Jul-14

Oct-14

Source: Bloomberg

52-week share price range
0.71
0.73

0.59

0.84
Current

Target

gestation periods.

Exciting new segment in
Integrated dormitories

As part of efforts to improve the living
quarters of work permit holders,
Singapore is developing a number of
purpose-built dormitories for foreign
workers. Over the next two years, we
can expect an additional ~100k beds
in six dormitories. The first one is up
in Penjuru and Sheng Siong has won
the bid to run a new store in the new
integrated dormitory. We think this
represents new store opportunities as
A new dawn
After two years of no-store growth, Sheng Shiong‟s positioning sits well in Sheng Shiong opened two stores in this segment. Points to douse Dec-Jan, hiking total retail space by over-optimism include its ability to ~3.5% and the store count to 35. The secure leases and smaller floor space last is in Tampines Central (9.8k sf). at these locations (~4k sf at Penjuru December‟s one is in Penjuru (4.0k sf). vs. ~12k sf average). The Tampines store was expected as Cautious entry into China the company had won the site in 2014; Sheng Siong has a 60% stake in its Penjuru was new to us. Recent China JV to run supermarkets in grouses about SSG centred on its need Kunming. Management has indicated to buy sites to expand since that is that it will be looking to lease retail expensive and morphs an asset-light space and open 1-2 stores at the outset. business model into an asset-heavy We understand that investors are one. We agree but also feel that such concerned that this will burn a capital grouses will dissipate as new stores hole. Management is very clear in deliver earnings growth. Desirable guiding that it will not buy stores and sites in matured estates, such as will limit its investment to US$6m. Tampines,

should
see
shorter
Financial Summary

Relative to FSSTI (RHS)

0.750

Jan-14

Government initiatives to provide
holistic living quarters for foreign
workers are a catalyst for store growth.
Potential closure of competitor stores
is a bonus. We believe store growth
can surprise in 2015-16 and we raise
FY15-16 EPS by 4-7%, which increases
our target price (22x CY16 P/E,
average 12m forward P/E). The key
catalyst is a return of store growth in
Singapore, which will mute concerns
over the risk of throwing capital into
China growth plans.

Revenue (S$m)
Operating EBITDA (S$m)
Net Profit (S$m)
Core EPS (S$)
Core EPS Growth
FD Core P/E (x)
DPS (S$)
Dividend Yield
EV/EBITDA (x)
P/FCFE (x)
Net Gearing
P/BV (x)
ROE
% Change In Core EPS Estimates
CIMB/consensus EPS (x)

Dec-12A...
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