Maybank Kim Eng&rsquo s Kareen Chan has initiated coverage on Sheng Siong Group with a &ldquo sell&rdquo call and $1.33, citing its &ldquo best days are over&rdquo .

 

From her perspective, the supermarket chain, which benefited from higher-than-normal buying last year amid the pandemic, is unlikely to see another windfall this year as more people dine out with the expected ban lift later this year along with higher vaccination rates.

 

When the pandemic started early last year, Sheng Siong shares dropped from $1.30 to as low as $1.08 but when scenes of anxious buyers thronging supermarkets started showing, the stock shot up to as high as $1.83 last August. It closed on July 30 at $1.57.

Citing estimates by research firm Euromonitor, Chan notes that supermarket sales will drop by a CAGR of 5% between 2020 and 2023.

 

&ldquo We believe Sheng Siong, being the second largest supermarket operator in Singapore, is vulnerable to such industry headwinds,&rdquo writes Chan in her July 31 note.

 

On July 29, Sheng Siong reported earnings of $65.9 million in 1HFY21 ended June, down 11.9% y-o-y.

 

&ldquo Also, near-term catalysts are limited as new store opening visibility is low,&rdquo states 

Chan, who expects the company&rsquo s FY22 earnings per share to drop 7% y-o-y.

Her $1.33 target price is pegged to 19.5 times FY22 earnings forecast.

 

According to Chan, higher-than-expected new store openings and/or slower tapering of demand could pose upside risk to her target price.

 

For investors looking for &ldquo reopening plays&rdquo , her recommendations are Thai Beverage and ComfortDelGro.

 

MAINBOARD-LISTED supermarket operator Sheng Siong Group saw a more subdued first half, after the year-ago high base from a buying frenzy when the pandemic first hit.

 

Net profit was down by 11.9 per cent to S$65.9 million, as revenue slipped 8.8 per cent to S$681.7 million, according to unaudited financial results released on Thursday for the six months to June 30.

 

Sheng Siong noted in its outlook statement that third-quarter demand may be higher year on year, given the recent tightening of Covid-19 measures from July 22 to Aug 18.

 

But " the demand is likely to taper in the second half of 2021" , even as government support could ease on the back of an improving Covid-19 situation in Singapore.

 

Otherwise, Sheng Siong chief executive Lim Hock Chee said in a statement that " our expansion plan in China is also moving forward" , with lease agreements inked for two more stores that are slated to open in Kunming in the second half of the year.

 

Mr Lim added that the group is still looking for new retail space in Singapore " particularly in areas where we have yet to build a presence" , despite tighter supply amid the pandemic that affected expansion plans.

 

For the six months, earnings per share fell to 4.39 Singapore cents, from 4.98 cents previously, while net asset value was S$0.26 a share, against S$0.25 as at end-2020.

 

The board declared an interim dividend of 3.1 cents a share, compared with 3.5 cents the year before. Books close on Aug 18 and payment will be on Aug 30.

 

Separately, Sheng Siong has named Patrick Chee to its board as an independent director. Mr Chee, 66, is senior legal consultant at Withers KhattarWong and also sits on the boards of China International Holdings, OneApex, MeGroup and QAF.