April 2, 2018
Sheng Siong Group (SSG SP) BUY At the Heartland of the Matter Share Price SGD 0.93 12m Price Target SGD 1.20 (+29%)
Not just resilient, winning market share; BUY Company Description Excessive concerns about e-commerce disruptions led to SSG’s 12-month Mass-market supermarket operator. Third largest in
underperformance of 10% against the STI, despite its results resilience. Singapore by market share. SSG continues to offer grocery-shopping convenience, focusing on fresh foods in densely-populated HDB estates, where more than 80% of Singapore’s residents reside. We resume coverage with a BUY rating, expecting catalysts from: 1) further improvements in consumer spending; Statistics 2) SSG’s further market-share wins from convenience stores and 52w high/low (SGD) 1.01/0.91 traditional market grocers; 3) a potential surge in new stores in 2018; and 3m avg turnover (USDm) 1.1 4) continued good sets of results, supporting high ROEs and dividends. Our Free float (%) 34.4 DCF TP is SGD1.20 (7.7% WACC, 1.5% LTG). Key risks include landlords Issued shares (m) 1,504 taking back their rental space and fiercer-than-expected competition.
Consumer Staples Market capitalisation SGD1.4B Strong turn in consumer spending USD1.1B Major shareholders: Supermarkets continue to claw market share in Singapore, from Sheng Siong Holdings Pte Ltd. 29.8% convenience stores and traditional market grocers. Despite the increasing Lim Hock Chee 11.3% popularity of online grocery shopping, they continued to book sales Lim Hock Eng 11.3% growth in 2017. A Jan 2018 Euromonitor study attributed this to online grocers’ more premium target markets and the price sensitivity of most Price Performance mass-market shoppers, who would rather shop and carry than shop online 1.15 155 and pay for delivery. Singapore’s supermarket retail sales index also turned around in 2017, to +3.7% from -0.1% in 2016, from better economy. 1.10 145 1.05 135 Singapore Along with this, SSG’s SSSG improved to 2.1% in 2017 from 0.2% in 2016.
We model 2% SSSG for 2018E, to be led by GDP, wage and job growth. 1.00 125 Potential surge in new stores 0.95 115 Crucial to SSG’s continued EPS growth is the opening of new stores. New 0.90 105 openings are dependent on the availability of HDB sites for bidding, since 0.85 95 SSG locates most of its stores in HDB estates. Reduced competition from 0.80 85 smaller supermarket players after a round of slugfests in Dec 2016 has Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 freed up new shop space in recent bidding. The HDB is also nearly Sheng Siong Group - (LHS, SGD) completing several new housing projects, after three years of Sheng Siong Group / Straits Times Index - (RHS, %) construction. Sites for bidding have more than doubled to an estimated 20 -1M -3M -12M from three years ago. Although SSG closed two of its largest stores in FY17 Absolute (%) (1) 1 (2) due to land redevelopment, it also secured nine more new stores, ahead of the closures. We expect 4% YoY revenue growth for FY18E. Relative to index (%) 2 (0) (10) Source: FactSet
China also not fully priced in SSG trades at 19x FY18E EPS or 1SD below its 5-year mean and a 41% discount to regional peers. We think its future EPS growth, consistently high ROEs and yields have not been priced in. We have also not included potential contributions from its new store in China, opened in 4Q17.
FYE Dec (SGD m) FY16A FY17A FY18E FY19E FY20E Revenue 797 830 862 910 960 EBITDA 90 97 103 110 116 Core net profit 63 67 72 77 82 Core EPS (cts) 4.2 4.5 4.8 5.1 5.5 Core EPS growth (%) 10.4 7.4 7.5 6.8 6.7 Net DPS (cts) 3.8 3.3 3.4 3.6 3.8 Core P/E (x) 22.3 20.8 19.3 18.1 17.0 P/BV (x) 5.5 5.2 4.8 4.4 4.1 Net dividend yield (%) 4.0 3.5 3.6 3.9 4.1 ROAE (%) 25.3 26.6 25.7 25.4 25.1 ROAA (%) 16.6 17.0 17.4 17.4 17.4 EV/EBITDA (x) 15.1 13.6 12.7 11.7 10.8 Net gearing (%) (incl perps) net cash net cash net cash net cash net cash Consensus net profit - - 72 74 80 MKE vs. Consensus (%) - - 1.1 4.4 3.5
John Cheong, CFA [email protected] (65) 6231 5845
THIS REPORT HAS BEEN PREPARED BY MAYBANK KIM ENG RESEARCH Co. Reg No: 198700034E MICA (P) : 099/03/2012 SEE PAGE 28 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS Sheng Siong Group
Table of Contents
1. Investment Summary ...... 3 2. Focus Charts ...... 4 3. Turnaround In Consumer Spending ...... 5 4. Bigger Pipeline of New Stores ...... 12 5. Financial Analysis ...... 14 6. Valuation & TP ...... 18 7. Risks ...... 20 Appendix 1: Outlets & Revenue Contributions ...... 22 Appendix 2: Recovery In Retail Sales Index ...... 23
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1. Investment Summary
A name that stands for low overheads and great value in grocery shopping, SSG is the third-largest and only listed pure supermarket operator in Singapore. At our latest count, it operated 48 stores for a 19% market share by sales. A steady consumer-staple stock, we believe SSG should be a long-term core holding in any consumer portfolio. Near-term, we see catalysts from faster-than-expected new-store opening, which could lead to earnings surprises.
Turnaround in consumer spending Singapore’s supermarkets continue to claw market share from convenience stores and traditional market grocers. This is being led by their good accessibility and wider variety of cheaper goods, especially after many outlets started 24 hours operations in densely-populated estates. Along with improved consumer sentiment as the economy chugs along, supermarket sales grew 3% in 2017, up from 2% in 2016. The supermarket & hypermarket retail sales index improved to +3.7% in 2017 from -0.1% in 2016. SSG was not left out, with its SSSG rising to 2.1% in 2017 from 0.2% in 2016. We see GDP, employment and wage growth supporting further consumer spending this year and next.
Ample new sites for new stores Crucial to SSG’s revenue and earnings growth is the opening of new stores. There were fewer than 10 sites available for bidding p.a. in the last three years as many HDB new projects were still under construction. Come this year, available HDB sites for bidding are expected to more than double to 20, as the construction of the new projects approaches completion. We expect SSG to be successful in bidding for three sites of 5k sf each. Although it closed two of its largest stores in FY17, it managed to secure more space ahead of their closures. As of 1Q18, it had rolled out 32.1k sf of new space. This forms 68% of our target of 47.1k sf for 2018E. For 2019- 2020, it aims to open five new stores p.a., with combined floor space of 25k sf. We model 4-6% revenue growth for FY18-20E, on par with FY15- 17’s 4-5%, mainly led by new stores.
China’s contributions not priced in SSG trades at 19x FY18E P/E and 13x FY18E EV/EBITDA. We believe the market has not priced in potential contributions from its new store in China, which started operations in 4Q17. Relative to ASEAN supermarket operators and food retailers that trade at 32x/28x FY18E/19E P/E averages, SSG does not appear overvalued. While these peers operate in bigger consumer countries such as Thailand, Indonesia and the Philippines, it offers higher net margins and dividend yield of 3.6%. We believe it should be a long-term core holding of consumer portfolios. Our DCF TP of SG1.20 implies 25x FY18E P/E and 17x EV/EBITDA.
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2. Focus Charts
Fig 1: Supermarkets have been eating the market share of Fig 2: SSG and NTUC FairPrice have been the gainers, at the convenience stores and traditional grocers expense of Dairy Farm and other smaller players Convenience Stores Hypermarkets Sheng Siong Group (mkt sh) 60% Supermarkets Traditional Grocery Retailers (%) NTUC FairPrice Co-operative Dairy Farm International Holdings 52.0% 52.1% 51.3% 51.9% 52.7% 50.4% Others 56.0 60 53.6 54.9 50% 50.8 51.9 52.7 50 Supermarkets gained market share since 2016, at the expense of other grocery retailers 40% 31.4% 31.1% 31.0% 40 29.4% 29.0% 28.4% Sheng Siong and NTUC are gaining market share, from Dairy Farm and other players 30% 30 23.9 23.8 23.2 22.1 20.7 19.5 20% 11.4% 11.5% 11.6% 20 9.4% 8.2% 8.5% 18.5 18.9 10% 10 16.9 17.3 17.7 18.1 7.4% 7.3% 8.4 7.0 6.3 6.2 6.1 0% 7.1% 6.7% 6.4% 6.0% 0 5.7 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017
Source: Euromonitor, Maybank Kim Eng Source: Euromonitor, Maybank Kim Eng
Fig 3: New stores typically lift SSSG, revenue and EPS Fig 4: Margin improvements from more fresh products and better efficiency after the introduction of a centralised (SGD m) warehouse 1,000 Gross margin (LHS) (%) (%) 960 EBIT margin (RHS) 950 17 26.5 Net margin (RHS) 12.0 910 32 900 16 862 32 26.0 10.0 8.6 850 830 8.4 8.4 8.5 52 25.5 7.9 800 16 7.4 8.0 36 6.6 25.0 750 6.0 700 24.5 4.0 24.0
23.5 2.0
23.0 0.0 FY14 FY15 FY16 FY17 FY18E FY19E FY20E Source: Company, Maybank Kim Eng
Source: Company, Maybank Kim Eng
Fig 5: HDB’s tenders for supermarkets are expected to Fig 6: Stacks wells against peers in ASEAN and North Asia accelerate in 2018 Div Net EPS ROE P/E yield margin growth Supermarkets Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18E Mar-19E (%) (%) (%) (%) Awarded 9 5 13 18 5 4 4 15 Under Act FY1 FY2 FY1 FY1 FY1 FY1 8 15 28 37 37 34 construction Sheng Siong 20.8 19.3 18.1 3.6 8.4 25.7 7.5 Source: Bloomberg, Maybank Kim Eng ASEAN avg 38.8 32.2 27.9 1.5 4.1 26.1 18.8 North Asia avg 35.6 24.9 20.6 1.7 3.0 8.2 33.6 Int’l avg 21.2 18.5 17.1 2.4 2.6 18.4 14.1
Avg excl SSG 31.9 25.2 21.9 1.9 3.2 17.6 22.2
Source: Factset, Maybank Kim Eng
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3. Turnaround In Consumer Spending
Singapore’s supermarkets continue to gain market share from convenience stores and traditional grocers. This is aided by their convenient access in many localities and wider variety of cheaper goods. Many outlets in densely-populated estates have also started 24 hours operations. Smaller supermarket operators, however, have been losing out, due to a lack of scale and centralised warehouses. Their exit has eased competition for new shop space since early 2017. Supermarket sales increased 1ppt to 3% YoY in 2017, up from 2% YoY in 2016. SingStat’s retail sales index, excluding motor vehicles, grew 1.8% in 2017, a reversal from -2.6% in 2016. The index’s sub-component, supermarket & hypermarket sales, performed even better. It was up 3.7% in 2017, from -0.1% in 2018. SSG was not left out, with SSSG of 2.1% in 2017 vs 0.2% in 2016.
This year, our house is expecting GDP growth of 2.8% YoY. Strong growth in wage and job are also expected to be lift retail sales.
Fig 7: Supermarket sales grew a stronger 3% YoY in 2017, Fig 8: Their sales in value, outlets and selling space largely as SSG and FairPrice continued to add stores 2012 2013 2014 2015 2016 2017 (SGD m) (%) Value sales (LHS) YoY (RHS) Value sales (SGD m) 3,772 3,965 4,091 4,228 4,310 4,440 4,600 6.0% 4,400 (YoY) 5.1% 3.2% 3.3% 1.9% 3.0% 5.0% 4,200 Outlets (No.) 296 304 306 316 323 315* 4.0% 4,000 (YoY) 2.7% 0.7% 3.3% 2.2% -2.5%
3,800 3.0% Selling Space (sqm'000) 342.5 361.7 373.5 381.5 396.7 393.2 3,600 2.0% (YoY) 5.6% 3.3% 2.1% 4.0% -0.9% 3,400 1.0% 3,200 * Outlets closed in 2017 mainly belonged to Dairy Farm and smaller players 3,000 0.0% Source: Euromonitor
2012 2013 2014 2015 2016 2017
Source: Euromonitor
Fig 9: Better YoY % change in retail sales index (2017 = 100) Fig 10: Better SSSG for SSG in 2017 after two slow years
Supermkts & Hypermkts Total (excl Motor Vehicles) (YoY %) (YoY %) Dept Stores Mini-marts & Conv. Stores Food Retailers 4% 3.3% 6 4.8 3.8 3.6 3.7 3% 4 2.1% 2 2% -0.1 1.8 0 0.9 0.7% -0.5 1% -1.2 0.2% (2) -2.6 0% (4) -1% (6) (8) -2% -2.0% (10) -3% 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017
Source: SingStat Source: Company
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Fig 11: Healthy GDP growth, after a strong recovery in 2017 Fig 12: Uptick in employment since 4Q17
(YoY %) (No. '000) 6% 50 40.7 5% 40 5.1% 33.4 3.9% 27.7 4% 3.6% 30 28.3 2.8% 20 16.1 3% 2.4% 12.6 13.0 12.7 2.2% 9.7 10 4.2 2% 2.3 (2.7) (2.3) 0 (6.1) (6.8) 1% (7.3) (10) 0% 2013 2014 2015 2016 2017 2018E
Source: SingStat Source: Ministry of Manpower
Fig 13: Median wage grew 5.9% in 2017, after a slow 2016
(SGD) (YoY %) Median wage (LHS) YoY growth (RHS) 4,500 14% 12.2% 4,000 12% 3,500 10% 3,000 7.1% 2,500 8% 6.3% 6.5% 5.8% 5.9% 2,000 5.1% 6% 1,500 4% 2.5% 1,000 0.0% 0.7% 2% 500
0 0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: Singstat
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3.1 Supermarkets gained market share, so did SSG
Euromonitor’s recent grocery-industry analysis suggests that supermarkets in Singapore will continue to gain market share from: 1) convenience stores such as 7-11; 2) minimarts and traditional grocers found in wet markets; 2) food, drink or tobacco specialists; and 4) other retailers. Convenience stores have been losing out as supermarkets keep expanding their variety of goods, at lower prices. More supermarkets have also started to operate 24 hours, especially in heavily-populated estates. Traditional grocers have been downsizing or exiting due to rising rentals, a lack of successors and price competition from the big boys. The chaotic setting of wet markets also contrasts unfavourably with supermarkets’ air- conditioned comfort and wide selection of products.
Among the supermarkets, SSG and FairPrice, a cooperative run by the National Trades Union Congress (NTUC), the apex of trade unions in Singapore, have been gaining market share from Dairy Farm International (DFI SP; Not Rated) and the smaller supermarket players. Dairy Farm’s sales have been declining for two of its four supermarket formats: Cold Storage and Giant Super. We attribute Cold Storage’s poor performance to increasing price consciousness among Singapore’s consumers on one hand and more premium food options being rolled out by online retailers on the other. Giant Super’s huge supermarket outlets could also be facing more disruptions from online retailers, as non-fresh and non-FMCG products such as apparel and electrical appliances tend to be more convenient and cheaper to buy online, with more choices to boot. Dairy Farm attributed its FY17 results weakness to fierce price competition and the growth of discount retailers & e-commerce.
From 2014 to 2017, SSG’s market share increased 1.2ppts to 18.9%. Although it was still only the third-largest supermarket brand in Singapore in 2017, after FairPrice and Dairy Farm, it has closed its gap quite dramatically with Dairy Farm since 2013 (Fig 15).
Fig 14: Supermarkets have been eating the lunch of Fig 15: The gainers have been SSG and FairPrice, the losers convenience stores and traditional grocers Dairy Farm and the smaller players Convenience Stores Hypermarkets Sheng Siong Group (mkt sh) 60% Supermarkets Traditional Grocery Retailers (%) NTUC FairPrice Co-operative Dairy Farm International Holdings 52.0% 52.1% 51.3% 51.9% 52.7% 50.4% Others 56.0 60 53.6 54.9 50% 50.8 51.9 52.7 50 Supermarkets have been gaining market share since 2016, at the expense of other 40% grocery retailers 31.4% 31.1% 31.0% 40 29.4% 29.0% 28.4% SSG and FairPrice have been gaining market share, from Dairy Farm and other 30% players 30 23.9 23.8 23.2 22.1 20.7 19.5 20% 11.4% 11.5% 11.6% 20 9.4% 8.2% 8.5% 18.5 18.9 10% 10 16.9 17.3 17.7 18.1 7.4% 7.3% 8.4 7.0 6.3 6.2 6.1 0% 7.1% 6.7% 6.4% 6.0% 0 5.7 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017
Source: Euromonitor, Maybank Kim Eng Source: Euromonitor, Maybank Kim Eng
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Fig 16: Supermarkets’ market share by retail value (%) Supermarket Company 2014 2015 2016 2017
FairPrice NTUC FairPrice Co-operative 43.6 44.7 46.0 47.1 Sheng Siong Sheng Siong Group 17.7 18.1 18.5 18.9 Cold Storage Dairy Farm International Holdings 12.0 11.2 10.1 9.2 FairPrice Finest NTUC FairPrice Co-operative 9.1 8.9 8.9 8.9 Giant Super Dairy Farm International Holdings 6.2 5.8 5.5 5.2 Giant Express Dairy Farm International Holdings 3.0 3.0 3.0 3.0 Prime Prime Supermarket 2.8 2.8 2.8 2.7 Market Place by Jasons Dairy Farm International Holdings 2.0 2.1 2.1 2.1 Others Others 3.5 3.4 3.3 3.0 Total 100.0 100.0 100.0 100.0
Source: Euromonitor
Fig 17: Sales of modern vs traditional grocery retailers Supermarket brand (SGD m) 2012 2013 2014 2015 2016 2017
Convenience Stores 554 557 560 548 532 508 Forecourt Retailers 105 104 105 105 105 105 Hypermarkets 705 628 668 938 955 975 Supermarkets 3,772 3,965 4,091 4,228 4,310 4,440 Modern Grocery Retailers 5,135 5,254 5,423 5,819 5,903 6,027
Food/Drink/Tobacco Specialists 919 934 996 934 901 884 Independent Small Grocers 485 470 452 449 441 432 Other Grocery Retailers 946 966 983 1,041 1,064 1,080 Traditional Grocery Retailers 2,350 2,370 2,431 2,424 2,406 2,396
Total Grocery Retailers 7,485 7,624 7,854 8,243 8,308 8,423
Source: Euromonitor
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3.2 End of aggressive bidding by smaller players
SSG’s management observed that irrational site bidding by the smaller supermarket players, which started at end-2016, has ended. Reflecting their gradual loss of market share, the smaller players have not fared well in recent site bidding. While they won five out of five sites tendered in Dec 2016–Jan 2017 with winning bids of SGD15-21 psf, they have only won one out of six since Mar 2017, with lower winning bids of SGD9-16. Their cautious stance should provide a more conducive environment for SSG to open more new stores. Fig 18: Irrational bidding started by the smaller players in 2016 ended in Mar 2017 Development Address Floor Area Closing Date Company Name Bid Amount Psf bid (SGD) (sf) (SGD) QUEENSTOWN BLK 29A, GHIM MOH LINK, #01- 5,307 14/12/2017 NTUC FairPrice Co-operative Limited 46,688 8.8 01, S(271029) SENGKANG BLK 417, FERNVALE LINK, #01- 5,576 27/10/2017 Sheng Siong Supermarket Pte Ltd 91,000 16.3 11, S(790417) SENGKANG BLK 338, ANCHORVALE CRES, 5,156 28/09/2017 SHENG SIONG SUPERMARKET PTE LTD 66,850 13.0 #01-11, S(540338) KALLANG BLK 116, JLN TENTERAM, #01- 5,393 20/04/2017 COLD STORAGE SINGAPORE (1983) PTE LTD 77,000 14.3 02, S(320116) SHENG SIONG SUPERMARKET PTE LTD 76,000 14.1 Sheng Siong Supermarket Pte Ltd 61,000 11.3 NTUC Fairprice Co-operative Limited 58,188 10.8 TAMPINES BLK 878C, TAMPINES AVE 8, 3,100 31/03/2017 David Lim 46,000 14.8 #01-65, S(523878) Low Ren Wei 45,900 14.8 SHENG SIONG SUPERMARKET PTE LTD 43,500 14.0 Fortune Supermarket Pte. Ltd. 41,200 13.3 Sheng Siong Supermarket Pte Ltd 40,800 13.2 Hao Mart Pte Ltd 38,700 12.5 NTUC Fairprice Co-operative Limited 24,000 7.7 BISHAN BLK 410A, SIN MING AVE, #01- 5,813 02/03/2017 NTUC Fairprice Co-operative Limited 75,500 13.0 02, S(571410) SHENG SIONG SUPERMARKET PTE LTD 74,700 12.9 Sheng Siong Supermarket Pte Ltd 73,100 12.6 COLD STORAGE SINGAPORE (1983) PTE LTD 67,000 11.5 Fortune Supermarket Pte. Ltd. 47,900 8.2
YISHUN BLK 507, YISHUN AVENUE 4, 3,746 19/01/2017 U Stars Supermarket Pte Ltd 67,200 17.9 #01-09, S(760507) COLD STORAGE SINGAPORE (1983) PTE LTD 67,000 17.9 Sheng Siong Supermarket Pte Ltd 66,000 17.6 Fortune Supermarket Pte. Ltd. 48,100 12.8 NTUC FairPrice Co-operative Limited 38,100 10.2 SEMBAWANG BLK 120, CANBERRA CRESCENT, 3,595 30/12/2016 Ang Mo Supermarket Pte Ltd 62,100 17.3 #01-10, S(750120) ANG MO KIO BLK 260, ANG MO KIO STREET 5,388 30/12/2016 Ang Mo Supermarket Pte Ltd 80,100 14.9 21, #01-05, S(560260) TAMPINES Tampines Avenue 8 3,099 09/12/2016 Yes Supermarket Pte Ltd 64,000 20.7 Ang Mo Supermarket Pte Ltd 63,900 20.6 Sheng Siong Supermarket Pte Ltd 50,500 16.3 Cold Storage Singapore 44,000 14.2 Fortune Supermarket Pte Ltd 34,000 11.0 Hao Mart Pte Ltd 24,300 7.8 SENGKANG Compassvale Drive 3,345 08/12/2016 U Stars Supermarket 58,350 17.4 Sheng Siong Supermarket Pte Ltd 58,250 17.4 7S Mgt Pte Ltd 58,100 16.5 Sheng Siong Supermarket Pte Ltd 54,300 16.2 Cold Storage Singapore 54,100 16.2 Ang Mo Supermarket Pte Ltd 53,100 15.9 NTUC Fairprice Co-Operative Ltd 49,600 14.8
Source: www.hbiz.com.sg, Sheng Siong
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3.3 Online grocery not hindering industry growth
Despite the increasing popularity of online grocery shopping, supermarkets in Singapore continue to book sales growth. In Jan 2018, a Euromonitor study concluded that online grocery has not been hindering the growth of physical supermarkets. This could be due to: 1) growing demand for hand-picked fresh food. Singaporeans are increasingly conscious of the quality of food they consume. They generally perceive hand-picked fruits to be fresher. SSG has been growing its fresh-food contributions, from 35% of its revenue in 2011 to 44% in 2017; 2) rising restaurant prices have compelled many to eat at home more often. In general, the cost of operating restaurants has increased with rents and wages, while supermarket product prices have not surged as much; 3) most mass-market shoppers are price-sensitive and would rather shop and carry than pay for delivery; and 4) supermarkets themselves have responded to the online threat by experimenting with new retailing formats and online platforms. Click-&-collect or click-&-deliver services have been launched by almost every major supermarket brand, though contributions are miniscule at 1% of their revenue.
We also believe FairPrice’s first-mover advantage and market dominance have limited the room for disruptions by new entrants for the incumbents.
Fig 19: Internet grocery sales… Fig 20: … and their YoY growth
(SGD m) (SGD m) 2012 2013 2014 2015 2016 2017 NTUC FairPrice Redmart Dairy Farm 120 107 NTUC FairPrice 22 28 35 50 80 107 YoY 30% 24% 42% 59% 35% 100 Redmart - 2 10 27 53 79 80 79 80 YoY 540% 181% 95% 50%
Dairy Farm 15 17 18 19 19 20 60 50 53 YoY 14% 5% 3% 4% 4%
40 35 28 27 Total 37 47 68 98 153 207 22 19 19 20 15 17 18 YoY 29% 45% 43% 56% 35% 20 10 0 2 Source: Euromonitor
0 2012 2013 2014 2015 2016 2017
Source: Euromonitor
From what we can detect, the impact of online retailing is probably felt the most in bulk purchases, as bulk purchases can be heavy to lug home from physical stores. Examples are packaged drinks and personal-care & home-care products.
A comparison of the selling prices of several online players also suggests that price differences are not prominent. The biggest difference appears to be the minimum orders required for free delivery. FairPrice has the lowest requirement while Redmart, an up-and-coming online grocery purveyor, offers a membership programme which charges annual fees of SGD28.80. This entitles its members to lower order requirements for free delivery and 5% rebates on all orders. Dairy Farm’s Giant does not provide free delivery while SSG provides free delivery for minimum orders of SGD100.
But as the bill size of SSG’s customers is typically small, at SGD15-30, most of its customers do not meet its minimum order requirement of SGD100. As such, SSG’s online services are small, making up just around 1% of total sales.
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Fig 21: Minimum orders required for free delivery, delivery fees and selling prices for a basket of goods (SGD) Sheng Siong FairPrice Giant Redmart
Minimum order for free delivery 100 59 No free delivery 100 (40 for LiveUp Members) Delivery fee 6 for orders 7 for orders 7 for >60 5.99 for <40 <100 <59 12 for <60 3.99 for 40-100 Royal Umbrella Fragrant Rice (5kg) 14.80 14.80 14.80 14.80 Marigold HL Milk (1L) 3.20 3.20 3.20 3.20 Sunshine Soft White Bread (400g) 2.00 2.00 2.00 1.90 Top Anti-Bacterial Liquid Detergent (4.4kg) 11.45 11.45 11.45 10.85 SCOTT Toilet Rolls (20s) 6.15 5.50 5.95 6.15 Axion Diswash Paste – Anti bacterial (750g) 3.30 3.55 3.80 3.60 Huggies Gold Diaper Pants L (44 per pack) 14.95 18.95 19.95 19.95 Coke (24 x 320ML) 14.40 13.50 14.80 14.65 Ritz crackers (300g) 2.15 2.14 2.15 2.14 Darlie Toothpaste (175g) 2.60 3.05 3.15 2.75 St. Dalfour Jam (284g) 4.95 5.30 5.00 4.65 Ayam Brand Baked Beans (425g) 1.45 1.45 1.33 1.45 Lurpak Butter – Salted (200g) 6.00 6.00 6.15 5.10 Lifebuoy Handwash (200ML) 2.90 2.90 2.90 2.55
Source: Respective online websites. Data as of 16 Mar 2018
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4. Bigger Pipeline of New Stores
Historically, SSG’s SSSG is heavily dependent on the opening of new stores, as the older stores reach steady state in 2-3 years. This, in turn, is contingent on the availability of HDB sites for bidding, as SSG locates its stores in HDB heartlands with population density. Management highlighted that sites for bidding will more than double to 20 this year from the levels three years ago, as HDB new projects, which started three years ago, approach completion. YTD, SSG has already opened 32.1k sf of new space. This forms 68% of our forecast of 47.1k sf for 2018E. Beyond that, it intends to open five new stores each year, yielding combined floor space of 25k sf. These should more than make up for the closure of two of its largest stores in FY17 due to land redevelopment by their landlords.
New stores lift sales more than older ones as the growth of mature stores tracks that of their mature catchment populations. Large stores also generate lower revenue psf due to space wastage or product offerings that compete with online retailers’. The latter include electrical appliances and apparel. Given SSG’s heartland positioning, the availability of new HDB sites for tendering will be critical for its revenue visibility, as in the past. From HDB’s annual reports, we gather that the number of supermarkets under construction in HDB heartlands jumped from eight in 2011-2012 to 37 in 2016 and 34 by Mar 2017. But the number of sites awarded was limited in Mar 2016 and Mar 2017, as most were still under construction. In HDB’s schedule of new commercial units estimated for completion by 4Q18, 15 are sizeable supermarket sites of more than 5,000 sf each. This is a big jump from the 4-5 sites awarded in 2016-2017. In addition to sites opened for bidding, HDB occasionally invites supermarkets to tender privately for existing space. Management estimates there could be around five of such sites available in 2018. In total, there could be 20 up for grabs in 2018.
Fig 22: HDB’s awarded and upcoming tenders for supermarkets Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18E Mar-19E Supermarkets awarded 2 9 5 13 18 5 4 4 15 Supermarkets under construction 8 8 15 28 37 37 34
Source: HDB, Sheng Siong, Maybank KE estimates
Fig 23: New supermarkets due for completion in 2018 Estate Precinct Name Block Street Name Est. Floor Area (sq m) Est. completion Woodlands Woodlands Glen 573 Woodlands Drive 16 1000 1Q18-2Q18 Woodlands Admiralty Grove 693 Woodlands Avenue 6 500 1Q18-2Q18 Punggol East Waterway Sunray 658 Punggol East 500 1Q18-2Q18 Punggol West Matilda Court 231,231A Sumang Lane 500 1Q18-2Q18 Yishun Fern Grove @ Yishun 675 Yishun Avenue 4 500 1Q18-2Q18 Bukit Batok SkyPeak @ Bukit Batok 292 Bukit Batok East Avenue 6 500 1Q18-2Q18 Bukit Batok West Ridges @ Bukit Batok 440 Bukit Batok West Avenue 8 500 1Q18-2Q18 Bukit Batok West Terra @ Bukit Batok 451 Bukit Batok West Avenue 6 600 1Q18-2Q18 Sembawang Sun Breeze 365 Sembawang Crescent 500 1Q18-2Q18 Sembawang Sun Natura 361 Sembawang Crescent 500 1Q18-2Q18 Sengkang Anchorvale Fields 351 Anchorvale Road 500 1Q18-2Q18 Yishun Blossom Spring @ Yishun 461 Yishun Avenue 6 1000 3Q18 Woodlands Marsiling Greenview 182 Woodlands Street 13 800 3Q18 Punggol West Punggol Bayview 322 Sumang Walk 500 4Q18 Tampines Tampines GreenRidges 602B Tampines Avenue 9 600 4Q18
· The information above refers to new commercial units and does not include existing units that may be terminated from time to time. · The commercial units listed above do not include those in new generation neighbourhood centres under construction. · This information will be updated on a monthly basis and is subject to changes. Source: www.hbiz.com.sg (Updated as of Jan 2018)
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Sheng Siong Group
4.1 Taking its name into China
SSG opened its first overseas store in Kunming, Yunnan province in 4Q17. It aims to replicate its Singapore business there and expand into densely- populated residential districts which dangle low rentals to provide modern grocery shopping convenience. Management highlighted that the Chinese grocery industry is still dominated by traditional wet markets and neighbourhood convenience stores. As cities go, Kunming is special. Not only does its population of 6.6m dwarf that of Singapore, it is slated to benefit from China’s One Belt One Road initiative. It is destined to be the terminus of a 3,000 km high-speed rail link to Singapore. SSG’s local partner for its 54,000 sf store is the unlisted Kunming Lǜchén Group, which owns 30%. SSG owns 60% and Singapore-listed printing company, Xpress Holdings (XPH SP, Not Rated), the remaining 10%. Kunming Lǜchén has interests in property, hotels, microfinancing, supermarkets, condiment manufacturing and retailing.
In a Jan 2018 industry report on “Supermarkets in China”, Euromonitor estimated that China’s supermarket sales grew 3.2% YoY in 2017, up from 1.7% in 2016. Supermarkets suffered less from the online threat than hypermarkets, as their smaller sales areas and smaller inventories apparently enabled them to adapt quicker to changing consumer tastes. Community supermarkets have been gaining ground. Located in residential areas, these offer products which many local consumers need, usually daily necessities and local fresh foods. To improve convenience, more community supermarkets have also been providing home-delivery services. Leading supermarkets in China are gradually adopting smaller formats to reduce their operating costs from space rental and labour and to increase their flexibility in meeting consumer needs. Compact supermarkets have become popular, as they maximise the use of small sales areas.
The development of premium outlets is another way to differentiate brands. For instance, Sun Art Retail Group (6808 HK; Not Rated) introduced its premium supermarket brands, RH Lavia and Hi Auchan, in 2017.
April 2, 2018 13
Sheng Siong Group
5. Financial Analysis
5.1 P&L We expect revenue to grow 4-5% in FY18-20E, largely from new stores. We assume SSSG of 2.0%. Although SSG closed a major 41.5k sf store at Woodlands Block 6A in 4Q17, it secured four new stores in the same period, with a combined floor space of 32.1k sf. This makes up 68% of our estimate of 47.1k sf new space for FY18E.
We expect net margins to climb only 0.1ppt pa, from marginal savings in administrative expenses, cost savings from bulk purchases and IT improvements.
SSG’s net margins improved from 6.6% in FY14 to 8.4% in FY17 on the back of: 1) growing fresh-food contributions, from 40% of its revenue in 2015 to 44% in 2017. Fruits, vegetables, meat, fish, dairy and baked goods carry gross margins of more than 30% vs mid-teens for non-fresh-food groceries; and 2) big productivity drives since its IPO, particularly the opening of its purpose-built distribution centre at Mandai Link in 2011. This is now its HQ. Since 2012, gross margins have improved from 23% to 26%. In almost every quarter, more competitive direct and bulk purchasing made possible by Mandai Link has been cited as a reason.
Fig 24: P&L forecasts and key assumptions FYE Dec (SGD'000) FY14 FY15 FY16 FY17 FY18E FY19E FY20E Revenue 725,987 764,433 796,683 829,877 862,365 910,353 960,623 Cost of sales (550,301) (575,531) (592,029) (612,472) (636,425) (671,841) (708,940) Gross Profit 175,686 188,902 204,654 217,405 225,940 238,513 251,683 Other income 4,677 9,262 10,543 10,344 10,000 10,000 10,000 Distribution expenses (4,259) (4,431) (5,114) (5,509) (5,778) (6,099) (6,436) Administrative expenses (117,417) (125,264) (132,663) (137,936) (140,565) (146,567) (152,739) Other expenses/gains/losses (1,855) (1,984) (1,794) (2,449) (2,415) (2,549) (2,690) Income from operations / EBIT 56,832 66,485 75,626 81,855 87,182 93,297 99,818 Financial Income 916 1,215 573 237 300 350 350 Profit Before Tax 57,748 67,700 76,199 82,092 87,482 93,647 100,168 Taxation (10,146) (10,914) (13,499) (12,559) (15,309) (16,388) (17,529) Net Profit 47,602 56,786 62,700 69,533 72,172 77,259 82,639 Minority earnings - - - - (200) - 100 Profit attributable to shareholders 47,602 56,786 62,700 69,533 72,372 77,259 82,539 Adjustments - - - 2,200 - - - Core Profit 47,602 56,786 62,700 67,333 72,372 77,259 82,539
Margins (%) Gross margin 24.2 24.7 25.7 26.2 26.2 26.2 26.2 EBIT margin 7.8 8.7 9.5 9.9 10.1 10.2 10.4 PBT margin 8.0 8.9 9.6 9.9 10.1 10.3 10.4 Net margin 6.6 7.4 7.9 8.4 8.4 8.5 8.6
Revenue growth breakdown (% YoY): Total revenue growth 5.6 5.3 4.2 4.2 3.9 5.6 5.4 New store sales growth 2.3 4.6 6.2 6.2 6.3 3.7 3.5 Same store sales growth 3.3 0.7 0.2 2.1 2.0 1.9 1.9 One off store closure drag -2.2 -2.4 -4.3
Singapore retail area (sf) Beg of year 400,000 404,000 431,000 450,000 404,400 451,500 476,500 - Closures 0 0 (5,952) (86,500) 0 0 0 - Openings 4,000 15,780 24,800 40,900 47,100 25,000 25,000 Net change 4,000 27,000 18,848 (45,600) 47,100 25,000 25,000 End of year 404,000 431,000 450,000 404,400 451,500 476,500 501,500 Average weighted area 400,000 422,000 436,000 435,700 451,500 464,000 489,000
Net change in yr end retail area 1.0% 6.7% 4.4% -10.1% 11.6% 5.5% 5.2% Net change in avg retail area 0.0% 5.5% 3.3% -0.1% 3.6% 2.8% 5.4% Revenue psf (weighted average) 1,815 1,811 1,827 1,905 1,910 1,911 1,914 Revenue psf (YoY) 5.6% -0.2% 0.9% 4.3% 0.3% 0.03% 0.16%
Source: Company, Maybank Kim Eng
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Fig 25: New stores and SSSG Fig 26: Net margins improved from more fresh products and better efficiency after the opening of a centralised (SGD m) warehouse 1,000 Gross margin (LHS) 960 (%) (%) EBIT margin (RHS) 950 17 26.5 Net margin (RHS) 12.0 910 32 900 16 862 32 26.0 10.0 850 830 8.5 8.6 52 8.4 8.4 25.5 7.9 800 16 7.4 8.0 36 6.6 750 25.0 6.0 700 24.5 4.0 24.0
23.5 2.0
23.0 0.0
Source: Company, Maybank Kim Eng FY14 FY15 FY16 FY17 FY18E FY19E FY20E
Source: Company, Maybank Kim Eng
Fig 27: Revenue forecasts for new stores and SSSG FYE Dec (SGD) Floor space Revenue psf Annual revenue % growth
2017 revenue 829,877,000
2018 revenue flow Woodlands Block 6A closure (4Q17) (41,500) 860 (35,690,000) 12 months contribution Fernvale Blk417 (1Q18) 5,600 1,700 9,520,000 Anchorvale Blk 338 (1Q18) 5,200 1,700 8,840,000 Canberra St 105 (1Q18) 11,300 1,300 14,690,000 6-9 months contribution ITE Ang Mo Kio (2Q18) 10,000 1,300 6,500,000 3 new stores of 5k sf 15,000 1,700 12,750,000
New stores contributions 47,100 1,110 52,300,000
2017 revenue excl-Woodlands Block 6A 794,187,000 -4.3% Add SSSG of 2% 15,878,181 2.0% Add new stores 52,300,000 6.6%
2018 revenue 862,365,181 3.9%
2019 revenue flow 9 months contribution 5 new stores of 5k sf 25,000 1,700 31,875,000 3.7% Add SSSG of 1.9% 16,112,862 1.9%
2019 revenue 910,353,043 5.6%
2020 revenue flow 9 months contribution 5 new stores of 5k sf 25,000 1,700 31,875,000 3.5% Add SSSG of 1.9% 17,392,295 1.9%
2020 revenue 959,620,338 5.4%
Source: Company, Maybank Kim Eng
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5.2 Cash flow SSG generates SGD80m p.a. of operating cashflow. Supermarkets are mainly cash-and-credit businesses. With their skew towards fresh produce, inventory days are usually less than a month. But as its suppliers give SSG 50 days of credit, its business is essentially financed by its suppliers. FCF turned positive in FY17 to SGD61.2m from -SGD10.6m in FY16. This reflected the end of capex for its new warehouse and acquisition of two properties. We expect FCF to improve further in FY18-20E, as there should be no large capex after paying the remaining SGD16m for its warehouse and in the absence of property acquisitions.
Operating cash flow is typically more than enough to cover capex and 90% payouts. In a year with no property acquisitions but just new-store renovation, capex should not exceed SGD7-8m pa. Maintenance capex is typically only SGD4m pa. FY16 was an exception when it acquired two properties in Bedok Central 209 and Yishun Junction 9. SSG prefers to rent sites but will buy over existing properties if it sees risks of lease termination or if a store’s revenue is large enough to justify its acquisition. In the case of a new mall such as Yishun Junction 9, it bought its shop space there as it appreciated the potential of the Yishun estate, which is part of the HDB’s estate-rejuvenation programme.
Fig 28: Cashflow forecasts FYE Dec (SGD'000) FY14 FY15 FY16 FY17 FY18E FY19E FY20E
Profit before tax 57,748 67,700 76,199 82,092 87,482 93,647 100,074 Depreciation 10,935 13,411 14,918 14,807 16,046 16,484 16,044 Other non-cash adjustments (1,009) (1,251) (866) (69) (300) (350) (350) Operating profit before WC changes 67,674 79,860 90,251 96,830 103,227 109,781 115,768
Changes in working capital: 11,525 2,539 770 (9,365) 8 1,998 2,051 (Increase)/decrease in inventories 2,424 (9,317) (9,427) 1,120 (3,049) (3,551) (3,646) (Increase)/decrease in receivables 1,499 (1,014) 1,398 (4,293) (700) (855) (877) Increase/ (decrease) in payables 7,602 12,870 8,799 (6,192) 3,758 6,404 6,575 Cash generated from operations 79,199 82,399 91,021 87,465 103,236 111,779 117,820 Income Tax Paid (7,477) (8,926) (12,952) (8,931) (15,309) (16,388) (17,513) Net cash generated from op activities 71,722 73,473 78,069 78,534 87,926 95,391 100,307
Proceeds from disposal of PPE 159 3 587 134 - - - Purchase of PPE (80,942) (30,401) (89,856) (17,719) (23,000) (9,500) (8,500) Interest received 916 1,215 574 237 300 350 350 Net cash used in investing activities (79,867) (29,183) (88,695) (17,348) (22,700) (9,150) (8,150)
Equity issuance 79,024 - 2,684 - - - - Dividends paid (40,122) (48,865) (54,879) (51,120) (50,661) (54,081) (57,723) Net cash used in financing activities 38,902 (48,865) (52,195) (51,120) (50,661) (54,081) (57,723)
Net Effect of Exchange Rate Changes 35 36 400 (138) - - - Net incr/(decr) in cash & cash eq. 30,792 (4,539) (62,421) 9,928 14,566 32,160 34,434 Cash at beginning 99,678 130,470 125,931 63,510 73,438 88,004 120,163 Cash at end 130,470 125,931 63,510 73,438 88,004 120,163 154,597
Free cash flow (8,145) 44,290 (10,626) 61,186 65,226 86,241 92,157 Free cash flow yield (%) -0.6% 3.1% -0.7% 4.3% 4.6% 6.0% 6.5%
Inventory days 29 33 38 36 37 37 37 Receivable days 5 6 5 6 7 7 7 Payable days 64 69 72 66 66 66 66 Cash conversion cycle (30) (30) (30) (24) (23) (23) (23)
Source: Company data, Maybank Kim Eng
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5.3 Balance sheet
Thanks to its robust FCF, SSG has been able to maintain net-cash positions since its IPO in 2011, with no debt on its balance sheet.
Fig 29: Balance-sheet forecasts FYE Dec (SGD'000) FY14 FY15 FY16 FY17 FY18E FY19E FY20E
Current assets 184,360 190,152 135,760 148,861 167,176 203,741 242,698 Cash & cash equivalent 130,470 125,931 63,510 73,438 88,004 120,163 154,597 Inventories 43,142 52,459 61,886 60,766 63,815 67,366 71,012 Trade receivables 10,748 11,762 10,364 14,657 15,357 16,212 17,089
Non-current assets 160,662 177,649 252,043 254,691 261,645 254,662 247,118 Property, plant and equipment 160,662 177,649 252,043 254,691 261,645 254,662 247,118
Total assets 345,022 367,801 387,803 403,552 428,821 458,403 489,816
Current liabilities 106,543 121,364 130,506 127,829 131,587 137,991 144,565 Trade and other payables 95,845 108,715 117,514 111,322 115,080 121,484 128,058 Income tax payable 10,698 12,649 12,992 16,507 16,507 16,507 16,507
Non-current liabilities 2,204 2,241 2,445 2,558 2,558 2,558 2,558 Deferred tax liabilities 2,204 2,241 2,445 2,558 2,558 2,558 2,558
Total liabilities 108,747 123,605 132,951 130,387 134,145 140,549 147,123
Net assets (or total equity) 236,275 244,196 254,852 273,165 294,677 317,854 342,693
Shareholders' equity 236,275 244,196 254,852 273,165 294,677 317,854 342,693 Share capital 235,373 235,373 235,373 235,373 235,373 235,373 235,373 Merger reserve (68,234) (68,234) (68,234) (68,234) (68,234) (68,234) (68,234) Other reserve 0 0 91 31 31 31 31 Retained Earnings 69,136 77,057 84,830 103,500 125,212 148,389 173,128
Equity attributable to owners of the co. 236,275 244,196 252,060 270,670 292,382 315,559 340,298 Non-controlling interest 0 0 2,792 2,495 2,295 2,295 2,395
Source: Company data, Maybank Kim Eng
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6. Valuation & TP
SSG trades at 19x FY18E and 13x FY19E earnings vs 32x / 28x for ASEAN supermarket operators and food retailers. While its peers operate in bigger consumer countries such as Thailand, Indonesia and the Philippines, SSG offers higher net margins, ROEs and dividend yield of 3.6%.
FY18E core EPS growth is estimated at 7.5%. If more new stores can be set up, there could be upside to our FY18-20E forecasts. SSG is interested in bidding for 20 store sites in FY18, which could potentially increase its GFA by 23%, assuming each is 5k sf.
Our SGD1.20 TP is based on DCF valuation, to capture the full value of its long-term potential. This is a steady business run by a cost-conscious management, with substantial influence over the national food supply.
Our DCF utilises a 2-stage model. The first incorporates 5-year forecasts for FY19-23E; the second assumes steady-state expansion of 3% for the next five or FY24-28E. Our TP implies 25x FY18E P/E and 17x FY18E EV/EBITDA. We believe this is reasonable, given its high ROEs, steady execution and earnings delivery.
Fig 30: DCF-based TP of SGD1.20 (SGD ‘000) FY17 FY18E FY19E FY20E FY21E FY22E FY23E FY24E FY25E FY26E FY27E FY28E EBIT 81,855 87,182 93,297 99,724 105,548 111,554 117,744 121,276 124,914 128,662 132,522 136,497 Add: depreciation 14,807 16,046 16,484 16,044 15,568 15,079 14,630 15,069 15,521 15,987 16,467 16,961 Add: other non-cash items 168 0 0 0 0 0 0 - - - - - Working capital changes (9,365) 8 1,998 2,051 1,702 1,710 1,719 1,770 1,823 1,878 1,934 1,992 Income taxes paid (8,931) (15,309) (16,388) (17,513) (18,532) (19,583) (20,666) (21,286) (21,925) (22,583) (23,260) (23,958) Net cash from op 78,534 87,926 95,391 100,307 104,286 108,760 113,426 116,829 120,334 123,944 127,662 131,492 Net capex (17,719) (23,000) (9,500) (8,500) (7,800) (7,956) (8,115) (8,359) (8,609) (8,868) (9,134) (9,408) FCFE 60,815 64,926 85,891 91,807 96,486 100,804 105,311 108,471 111,725 115,077 118,529 122,085 Terminal Value 1,998,644 PV 60,815 64,926 79,750 79,148 77,236 74,923 72,677 69,505 66,472 63,571 60,797 1,010,016 Total discounted FCFE 1,719,022 Add: FY18E net cash 80,766 Intrinsic value 1,799,788 Value/ Share 1.20
WACC 7.7% Cost of equity 7.7% Cost of debt (pre-tax) 4.5% Optimum Debt/Capital ratio 0.0% No debt and FCF generation should sustain Sheng Siong’s net-cash position.
Risk-free rate 2.5%
Beta 0.80 Bloomberg’s beta is 0.6 but we use 0.8 to factor in potential expansion execution risks, especially in China. Equity risk premium 6.5%
Terminal growth 1.5%
Current price 0.93
Upside 29%
Current mkt cap 1,398
Current P/E 20.8 19.3 18.1 17.0
Implied mkt cap of TP 1,804
Implied P/E of TP 26.8 24.9 23.4 21.9
Source: Company, Maybank Kim Eng
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Fig 31: SSG, which has better dividend yields and net margins, trades at a 41% discount to its ASEAN peers on FY18E P/E
Numbers are from consensus for Not Rated stocks. Source: Factset, Maybank Kim Eng. Share prices as of 30 Mar 2018
Fig 32: It is trading at 1SD below its 5-year forward P/E band
(x) 25
24 +2SD: 23.5x
23 +1SD: 22.1x 22 Mean: 20.8x 21
20
19 -1SD: 19.4x 19.1x 18 -2SD: 18.1x
17 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18
Source: Factset
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7. Risks
Landlords’ redevelopment / sale decisions In 2011, revenue was set back by the closure of two of its biggest supermarkets, in Ten Mile Junction and along Tanjong Katong Road. Their closure was necessitated by their landlords’ decisions to sell or redevelop their buildings.
In 2017, its two largest stores at The Verge and Woodlands 6A were closed, in 2Q17 and 4Q17. Their closures were due to landlord disposals and HDB redevelopment, respectively. In the case of Woodlands 6A, SSG was given advance notice by HDB. In the case of The Verge, it had more than a year to prepare for its landlord’s disposal.
As all these changes were flagged ahead of time, SSG and the market had time to prepare for them. SSG’s revenue continued to grow by 4.2% in FY17, despite the closure of The Verge, as it managed to prepare four new stores elsewhere with 25k sf of floor space from 1Q16 to 2Q17. It added another 8 stores with total floor space of 51k sf from 3Q17 to 1Q18. On top of that, it refurbished and expanded existing stores, adding 15k sf of floor space at Tampines 506 in 2Q17. It also found replacement space of 11.8k sf in Woodlands Str 12 in 4Q17.
Competition The only time in the past 10 years when a supermarket price war erupted was in 3Q11, shortly after SSG’s listing. This was a tug-of-war between SSG and FairPrice for market share. Fortunately, it ended as quickly as it started, in 4Q11.
The seasonally strongest 1Q and 3Q tend to be quarters of heightened competition. Rival supermarkets capitalise on festive demand to grab market share.
Perhaps the biggest threats that cannot be effectively quantified are firstly, new entrants. Aggressive site bidding by smaller new players at end-2016 led to a bidding war for rental sites. But this ground to a halt in less than a year, after a severe margin squeeze for the smaller players.
The other threat is from online grocery players such as Redmart and Amazon. They could precipitate price wars for market penetration. However, given that most of SSG’s stores sell about 45% of fresh foods in HDB residential estates, we believe they should be fairly insulated from online competition, which largely has lower average bill size.
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China’s wild card Management has positioned its Kunming venture as a trial. If it succeeds, it may expand further. If not, attributable sunk-in cost should be limited to USD6m, excluding management’s time and resources.
We are satisfied that SSG has more than a fair chance of success, based on the following:
Location. The supermarket is located in a new shopping mall built by Hong Kong-listed Greenland Hong Kong Holdings (337 HK, Not Rated). This is ultimately owned by a Chinese SOE, Greenland Holdings (600606 SH). The mall is smack in the middle of a large residential enclave in the suburbs of Kunming. This is important as Chinese shoppers prefer to find their big supermarkets in malls.
Limited big-boy competition. SSG’s competition in the vicinity is confined to wet markets and local supermarket chains. The only Western supermarkets - Carrefour, Tesco and Walmart - are located in Kunming’s financial district, far from SSG’s outlet.
Differentiation. SSG intends to use its established supply chain in Singapore to bring into China more brands from the West, Japan and Korea. It will also emphasise the fresh produce it is known for. Management says that getting food supply is not a problem as China is a buyers’ market and sellers are tripping over themselves to find buyers.
We have not factored in any revenue contributions for China. While Chinese supermarkets are a cut-throat business, we see the potential for success if locations and propositions - more fresh produce, more goods not found elsewhere - are good. SSG’s CEO is personally leading the charge and he is an industry veteran.
FX Only 10% of SSG’s material purchases is denominated in foreign currencies. The rest is in SGD. SSG buys from the local offices of its suppliers, such as Nestle and Procter & Gamble. Historically, exporters also prefer to sell to Singapore importers in SGD due to SGD’s stability.
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Appendix 1: Outlets & Revenue Contributions
Figure 33: Estimated revenue contributions of individual stores Store location Size (sf) Est. psf (SGD) Est. rev (SGD) % of revenue Remarks and Key assumptions Small stores (<5k sf & >1yr in operation) 28.2% Yishun Central 925 5,000 3,500 17,500,000 2.1% Smallest stores have the highest sales of SGD3,500 psf pa Ang Mo Kio 122 4,908 3,500 17,178,000 2.1% Chin Swee 4,477 3,500 15,669,500 1.9% Ang Mo Kio 233 4,284 3,500 14,994,000 1.8% Bukit Batok 154A 4,200 3,500 14,700,000 1.8% McNair 4,122 3,500 14,427,000 1.7% Penjuru (dormitory) 4,000 3,500 14,000,000 1.7% Jurong West 544 3,950 3,500 13,825,000 1.7% Ghim Moh 3,500 3,500 12,250,000 1.5% Circuit Road Block 18 3,500 3,500 12,250,000 1.5% Opened in 2016 Punggol 312A (Sumang) 3,360 3,500 11,760,000 1.4% Toa Payoh 4 3,300 3,500 11,550,000 1.4% Fernvale Link Block 473 3,300 3,500 11,550,000 1.4% Opened in 2016 Pasir Ris 527D 3,200 3,500 11,200,000 1.3% Bedok North 115 3,100 3,500 10,850,000 1.3% Upp Boon Keng Block 11 3,100 3,500 10,850,000 1.3% Opened in 2016 Teck Whye 3,071 3,500 10,748,500 1.3% Elias Mall 2,400 3,500 8,400,000 1.0% Smaller stores (5-10k sf & >1yr in operation) 19.6% Yishun 845 8,977 2,800 25,135,600 3.0% Smaller stores of 5-10k sf assumed to have high sales of Teban Gardens 7,341 2,800 20,554,800 2.5% SGD2,800 psf pa Punggol Central 6,878 2,800 19,258,400 2.3% Woodlands 301 6,027 2,800 16,875,600 2.0% Loyang Point 7,000 2,800 19,600,000 2.4% Clementi 352 5,834 2,800 16,335,200 2.0% Dawson Road 85 5,420 2,800 15,176,000 1.8% Clementi 420A 5,300 2,800 14,840,000 1.8% Bukit Panjang 547 5,220 2,800 14,616,000 1.8% Medium stores (10-20k sf & >1yr in operation) 37.9% Bedok North 539 19,106 2,200 42,033,200 5.1% Medium stores of 10-20k sf assumed to have higher-than- Jalan Berseh 16,500 2,200 36,300,000 4.4% average sales of SGD2,200 psf pa Superbowl (Yuan Ching Rd) 16,447 2,200 36,183,400 4.4% Yishun Junction 9 15,200 2,200 33,440,000 4.0% Opened in 2016 Jurong West 7 14,174 2,200 31,182,800 3.8% Tanglin Halt 13,433 2,200 29,552,600 3.6% Bedok Reservoir 12,529 2,200 27,563,800 3.3% Thomson Imperial Court 12,239 2,200 26,925,800 3.2% Woodlands 200 12,239 2,200 26,925,800 3.2% Geylang 301 11,000 2,200 24,200,000 2.9% Large stores (>20k sf & >1yr in operation) 9.4% Serangoon North Ave 5 33,133 850 28,163,050 3.4% Large stores assumed to have low sales of SGD850 psf pa Bedok Central 209 30,613 850 26,021,050 3.1% Clementi 720 27,921 850 23,732,850 2.9% Mainly revenue loss from closure of 2 large stores, Verge New stores (<1 yr in operation) 5.0% in 2Q17 and Woodlands in 4Q17. Tampines 506 25,000 200 5,000,000 0.6% Expansion completed in Jun 2017 (+15k sf) Fajar Block 446 4,000 Opened Aug 2017 Edgedale Plains Block 660 3,100 Opened Nov 2017 Woodlands Str 12 11,800 Opened Dec 2017 Fernvale Street Block 417 5,600 Opened in Jan 2018 Anchorvale Cres Block 336 5,200 Opened in Jan 2018 Canberra Street Block 105 11,300 Opened in Feb 2018 ITE Ang Mo Kio 10,000 To be opened in early Apr 2018
Source: Company data, Maybank Kim Eng
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Appendix 2: Recovery In Retail Sales Index
Fig 34: YoY % change in retail sales index (2017 = 100)
Source: Singstat p Preliminary
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Sheng Siong Group
Value Proposition Price Drivers
. Retailer of value-for-money groceries, with low overheads. Historical share price Low prices but products are of reasonably good value & quality. 1.20 3 220 . Convenient locations in public-housing heartlands. Outlets 1.10 4 200 2 stock a wide range of consumer staples. 1.00 180 . 19% market share, behind NTUC FairPrice & Dairy Farm. 0.90 160 . Low-cost cash business, financed by suppliers. High FCF 1 0.80 140 supports asset acquisitions & 70% payouts. 0.70 120 . ROIC consistently beats WACC by a wide margin, with a 1 0.60 100 significant widening in FY17 to 24.6% from 18.4% in FY11. 0.50 80 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Profitability vs returns: in the magic quadrant Sheng Siong Group - (LHS, SGD)
8 Sheng Siong Sheng Siong Group / MSCI AC Asia ex JP - (RHS, %) Source: Company, Maybank Kim Eng, Factset 7 Big C 6 Supercenter 5 Puregold Price 1. Mild correction following 120m new-share placement at Robinsons Club CP All 4 Retail Dairy Farm SGD0.66. 2. New-store dry spell of 2013-14 ended with opening of Net Margin Net Margin (%) 3 Siam Makro Aeon Malaysia five new stores in 2015. 2 Matahari Putra
Prima 3. Gross margin exceeded 26% level for the first time, in Avg 3Y 1 Sumber Alfaria 2Q16, mainly from reduction in input costs from bulk Trijaya 0 handing supported by central warehouse in Mandai. 5 10 15 20 25 30 35 40 4. Stock corrected and stuck in a trading range after news Avg 3Y ROE (%) Source: FactSet, Maybank Kim Eng reports relating to Amazon’s plan to enter ASEAN, with Singapore as its first destination, starting in 1Q17.
Financial Metrics Swing Factors
. We model 2% SSSG for FY18-20E, from further GDP growth Upside and a ramp-up of new stores. . Expect a 0.1ppt rise in net margins pa, mostly from lower . Stronger-than-expected revenue growth on the back of admin costs as a % of sales. strong GDP, wage and employment growth. . Capex expected to dwindle from FY19E, after last . Better-than-expected food-cost savings or lower labour payment for new warehouse. Capex for new stores costs following automation. estimated at SGD4m pa. Maintenance capex is SGD4m pa. . Wins more-than-expected tenders for public-housing sites . We expect FCF to improve further in FY18-20E, as there for new supermarkets. should be no large capex after paying the remaining SGD16m for its warehouse and no property acquisitions. . DPS to grow in tandem with EPS, based on 70% payouts. Downside
Revenue and net margins to grow consistently in FY18-20E . China supermarket does not take off. . Unable to pass on higher food costs due to competition. (SGD m) (%) Revenue Net margin (RHS) . Manpower shortages affecting Singapore operations. Due 1,000 9.0 to high mix of fresh food, it may need more workers per 800 8.5 store than its competitors.
8.0 Thousands 600 7.5 400 7.0
200 6.5
- 6.0 FY14 FY15 FY16 FY17 FY18E FY19E FY20E Source: Company, Maybank Kim Eng
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Sheng Siong Group
FYE 31 Dec FY16A FY17A FY18E FY19E FY20E Key Metrics P/E (reported) (x) 22.5 20.6 19.3 18.1 17.0 Core P/E (x) 22.3 20.8 19.3 18.1 17.0 P/BV (x) 5.5 5.2 4.8 4.4 4.1 P/NTA (x) 5.5 5.2 4.8 4.4 4.1 Net dividend yield (%) 4.0 3.5 3.6 3.9 4.1 FCF yield (%) nm 4.4 4.7 6.2 6.6 EV/EBITDA (x) 15.1 13.6 12.7 11.7 10.8 EV/EBIT (x) 18.0 16.1 15.1 13.7 12.5
INCOME STATEMENT (SGD m) Revenue 796.7 829.9 862.4 910.4 959.6 Gross profit 204.7 217.4 225.9 238.5 251.4 EBITDA 90.3 96.7 103.2 109.8 115.8 Depreciation (14.9) (14.8) (16.0) (16.5) (16.0) Amortisation 0.2 (0.0) 0.0 0.0 0.0 EBIT 75.6 81.9 87.2 93.3 99.7 Net interest income /(exp) 0.6 0.2 0.3 0.4 0.4 Associates & JV 0.0 0.0 0.0 0.0 0.0 Exceptionals 0.0 0.0 0.0 0.0 0.0 Other pretax income 0.0 0.0 0.0 0.0 0.0 Pretax profit 76.2 82.1 87.5 93.6 100.1 Income tax (13.5) (12.6) (15.3) (16.4) (17.5) Minorities 0.0 0.0 0.2 0.0 (0.1) Perpetual securities 0.0 0.0 0.0 0.0 0.0 Discontinued operations 0.0 0.0 0.0 0.0 0.0 Reported net profit 62.7 69.5 72.4 77.3 82.5 Core net profit 62.7 67.3 72.4 77.3 82.5 Preferred Dividends 0.0 0.0 0.0 0.0 0.0
BALANCE SHEET (SGD m) Cash & Short Term Investments 63.5 73.4 88.0 120.2 154.6 Accounts receivable 10.4 14.7 15.4 16.2 17.1 Inventory 61.9 60.8 63.8 67.4 71.0 Reinsurance assets 0.0 0.0 0.0 0.0 0.0 Property, Plant & Equip (net) 252.0 254.7 261.6 254.7 247.1 Intangible assets 0.0 0.0 0.0 0.0 0.0 Investment in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other assets 0.0 0.0 0.0 0.0 0.0 Total assets 387.8 403.6 428.8 458.4 489.8 ST interest bearing debt 0.0 0.0 0.0 0.0 0.0 Accounts payable 117.5 111.3 115.1 121.5 128.1 Insurance contract liabilities 0.0 0.0 0.0 0.0 0.0 LT interest bearing debt 0.0 0.0 0.0 0.0 0.0 Other liabilities 15.0 19.0 19.0 19.0 19.0 Total Liabilities 133.0 130.4 134.1 140.5 147.1 Shareholders Equity 252.1 270.7 292.4 315.6 340.3 Minority Interest 2.8 2.5 2.3 2.3 2.4 Total shareholder equity 254.9 273.2 294.7 317.9 342.7 Perpetual securities 0.0 0.0 0.0 0.0 0.0 Total liabilities and equity 387.8 403.6 428.8 458.4 489.8
CASH FLOW (SGD m) Pretax profit 76.2 82.1 87.5 93.6 100.1 Depreciation & amortisation 14.7 14.8 16.0 16.5 16.0 Adj net interest (income)/exp (0.6) (0.2) (0.3) (0.4) (0.4) Change in working capital 0.8 (9.4) 0.0 2.0 2.1 Cash taxes paid (13.0) (8.9) (15.3) (16.4) (17.5) Other operating cash flow (0.3) 0.2 0.0 0.0 0.0 Cash flow from operations 78.1 78.5 87.9 95.4 100.3 Capex (89.9) (17.7) (23.0) (9.5) (8.5) Free cash flow (10.6) 61.2 65.2 86.2 92.2 Dividends paid (54.9) (51.1) (50.7) (54.1) (57.7) Equity raised / (purchased) 2.7 0.0 0.0 0.0 0.0 Perpetual securities 0.0 0.0 0.0 0.0 0.0 Change in Debt 0.0 0.0 0.0 0.0 0.0 Perpetual securities distribution 0.0 0.0 0.0 0.0 0.0 Other invest/financing cash flow (88.7) (17.3) (22.7) (9.2) (8.2) Effect of exch rate changes 0.4 (0.1) 0.0 0.0 0.0 Net cash flow (62.4) 9.9 14.6 32.2 34.4
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Sheng Siong Group
FYE 31 Dec FY16A FY17A FY18E FY19E FY20E Key Ratios Growth ratios (%) Revenue growth 4.2 4.2 3.9 5.6 5.4 EBITDA growth 13.1 7.1 6.7 6.3 5.5 EBIT growth 13.7 8.2 6.5 7.0 6.9 Pretax growth 12.6 7.7 6.6 7.0 6.9 Reported net profit growth 10.4 10.9 4.1 6.8 6.7 Core net profit growth 10.4 7.4 7.5 6.8 6.7
Profitability ratios (%) EBITDA margin 11.3 11.7 12.0 12.1 12.1 EBIT margin 9.5 9.9 10.1 10.2 10.4 Pretax profit margin 9.6 9.9 10.1 10.3 10.4 Payout ratio 89.9 71.4 70.0 70.0 70.0
DuPont analysis Net profit margin (%) 7.9 8.4 8.4 8.5 8.6 Revenue/Assets (x) 2.1 2.1 2.0 2.0 2.0 Assets/Equity (x) 1.5 1.5 1.5 1.5 1.4 ROAE (%) 25.3 26.6 25.7 25.4 25.1 ROAA (%) 16.6 17.0 17.4 17.4 17.4
Liquidity & Efficiency Cash conversion cycle (29.0) (25.8) (22.5) (22.0) (22.0) Days receivable outstanding 5.0 5.4 6.3 6.2 6.2 Days inventory outstanding 34.8 36.0 35.2 35.1 35.2 Days payables outstanding 68.8 67.3 64.0 63.4 63.4 Dividend cover (x) 1.1 1.4 1.4 1.4 1.4 Current ratio (x) 1.0 1.2 1.3 1.5 1.7
Leverage & Expense Analysis Asset/Liability (x) 2.9 3.1 3.2 3.3 3.3 Net gearing (%) (incl perps) net cash net cash net cash net cash net cash Net gearing (%) (excl. perps) net cash net cash net cash net cash net cash Net interest cover (x) na na na na na Debt/EBITDA (x) 0.0 0.0 0.0 0.0 0.0 Capex/revenue (%) 11.3 2.1 2.7 1.0 0.9 Net debt/ (net cash) (63.5) (73.4) (88.0) (120.2) (154.6) Source: Company; Maybank
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Sheng Siong Group
Research Offices
REGIONAL MALAYSIA HONG KONG / CHINA THAILAND
Sadiq CURRIMBHOY WONG Chew Hann, CA Head of Research Christopher WONG Maria LAPIZ Head of Institutional Research Regional Head, Research & Economics (603) 2297 8686 [email protected] (852) 2268 0652 Dir (66) 2257 0250 | (66) 2658 6300 ext 1399 (65) 6231 5836 • Strategy [email protected] [email protected] [email protected] • HK & China Properties • Strategy • Consumer • Materials • Ind. Estates Desmond CH’NG, ACA • Oil & Gas • Telcos Jacqueline KO, CFA WONG Chew Hann, CA (603) 2297 8680 Sittichai DUANGRATTANACHAYA (852) 2268 0633 [email protected] Regional Head of Institutional Research [email protected] (66) 2658 6300 ext 1393 • Consumer Staples & Durables (603) 2297 8686 • Banking & Finance [email protected] [email protected] • Services Sector • Transport • Property • Telcos LIAW Thong Jung Ka Leong LO, CFA (852) 2268 0630 [email protected] Tanawat RUENBANTERNG ONG Seng Yeow (603) 2297 8688 [email protected] • Oil & Gas Services- Regional • Consumer Discretionary & Auto (66) 2658 6300 ext 1394 Regional Head of Retail Research [email protected] Mitchell KIM (65) 6231 5839 ONG Chee Ting, CA • Banks & Diversified Financials (852) 2268 0634 [email protected] [email protected] (603) 2297 8678 [email protected] • Internet & Telcos Ornmongkol TANTITANATORN • Plantations - Regional (66) 2658 6300 ext 1395 TAN Sin Mui Ricky NG, CFA [email protected] Director of Research Mohshin AZIZ (852) 2268 0689 [email protected] • Oil & Gas (65) 6231 5849 (603) 2297 8692 [email protected] • Regional Renewables Sukit UDOMSIRIKUL Head of Retail Research [email protected] • Aviation - Regional • Petrochem • HK & China Properties (66) 2658 5000 ext 5090 [email protected] ECONOMICS YIN Shao Yang, CPA Sonija LI, CFA, FRM (603) 2297 8916 [email protected] (852) 2268 0641 [email protected] Ekachai TARAPORNTIP Deputy Head Suhaimi ILIAS • Gaming – Regional • Media • Gaming 66) 2658 5000 ext 1530 Chief Economist [email protected] Malaysia | Philippines | China TAN Chi Wei, CFA Stefan CHANG, CFA Surachai PRAMUALCHAROENKIT (603) 2297 8682 (603) 2297 8690 [email protected] (852) 2268 0675 [email protected] (66) 2658 5000 ext 1470 [email protected] • Power • Telcos • Technology – Regional [email protected] • Auto • Conmat • Contractor • Steel CHUA Hak Bin WONG Wei Sum, CFA Bonny WENG Regional Thematic Macroeconomist (603) 2297 8679 [email protected] (852) 2268 0644 [email protected] Suttatip PEERASUB (66) 2658 5000 ext 1430 (65) 6231 5830 • Property • Technology – Regional [email protected] [email protected] LEE Yen Ling Tony REN, CFA • Media • Commerce LEE Ju Ye (603) 2297 8691 [email protected] (852) 2268 0640 [email protected] Sutthichai KUMWORACHAI Singapore • Building Materials • Glove • Ports • Shipping • Healthcare & Pharmaceutical (66) 2658 5000 ext 1400 (65) 6231 5844 [email protected] [email protected] Ivan YAP INDIA • Energy • Petrochem (603) 2297 8612 [email protected] Jigar SHAH Head of Research Termporn TANTIVIVAT Dr Zamros DZULKAFLI • Automotive • Semiconductor • Technology (91) 22 6623 2632 [email protected] (66) 2658 5000 ext 1520 (603) 2082 6818 [email protected] • Strategy • Oil & Gas • Automobile • Cement [email protected] Kevin WONG • Property (603) 2082 6824 [email protected] Ramesh LANKANATHAN • REITs • Consumer Discretionary Vishal MODI Jaroonpan WATTANAWONG (603) 2297 8685 (91) 22 6623 2607 [email protected] (66) 2658 5000 ext 1404 [email protected] LIEW Wei Han • Banking & Financials [email protected] • Transportation • Small cap (603) 2297 8676 [email protected] FX • Consumer Staples Neerav DALAL Sorrabhol VIRAMETEEKUL (91) 22 6623 2606 [email protected] Head of Digital Research Saktiandi SUPAAT Adrian WONG • Software Technology • Telcos (66) 2658 5000 ext 1550 Head, FX Research (603) 2297 8675 [email protected] [email protected] (65) 6320 1379 • Constructions • Healthcare Vishal PERIWAL • Food, Transportation [email protected] (91) 22 6623 2605 vishalperiwa@maybank- Wijit ARAYAPISIT Jade TAM Christopher WONG ke.co.in (66) 2658 5000 ext 1450 (603) 2297 8687 [email protected] (65) 6320 1347 • Infrastructure [email protected] [email protected] • Media • Building Materials • Strategist INDONESIA Leslie TANG Mohd Hafiz Hassan VIETNAM (603) 2082 6819 [email protected] (65) 6320 1378 Isnaputra ISKANDAR Head of Research • Small & Mid Caps LE Hong Lien, ACCA [email protected] (62) 21 8066 8680 [email protected] Head of Institutional Research TEE Sze Chiah Head of Retail Research (84 28) 44 555 888 x 8181 Fiona LIM • Strategy • Metals & Mining • Cement [email protected] (65) 6320 1374 (603) 2082 6858 [email protected] Rahmi MARINA • Strategy • Consumer • Diversified [email protected] Nik Ihsan Raja Abdullah, MSTA, CFTe (62) 21 8066 8689 (603) 2297 8694 [email protected] THAI Quang Trung, CFA, STRATEGY [email protected] • Banking & Finance Deputy Head, Institutional Research Sadiq CURRIMBHOY Aurellia SETIABUDI (84 28) 44 555 888 x 8180 [email protected] Global Strategist SINGAPORE (62) 21 8066 8691 [email protected] • Real Estate • Construction • Materials (65) 6231 5836 Neel SINHA Head of Research [email protected] • Property (65) 6231 5838 [email protected] LE Nguyen Nhat Chuyen • Strategy Janni ASMAN (84 28) 44 555 888 x 8082 Willie CHAN • SMID Caps – Regional (62) 21 8066 8687 [email protected] Hong Kong / Regional [email protected] • Oil & Gas (852) 2268 0631 CHUA Su Tye • Cigarette • Healthcare • Retail [email protected] (65) 6231 5842 [email protected] NGUYEN Thi Ngan Tuyen, • REITs PHILIPPINES Head of Retail Research FIXED INCOME (84 28) 44 555 888 x 8081 Derrick HENG, CFA Minda OLONAN Head of Research [email protected] Winson Phoon, ACA (65) 6231 5843 [email protected] (63) 2 849 8840 • Food & Beverage • Oil&Gas • Banking (65) 6231 5831 • Property • REITs (Office) [email protected] [email protected] • Strategy Luis HILADO TRUONG Quang Binh, Deputy Head, Retail Research Se Tho Mun Yi (65) 6231 5848 [email protected] Katherine TAN (84 28) 44 555 888 x 8087 (603) 2074 7606 • Telcos (63) 2 849 8843 [email protected] [email protected] [email protected] John CHEONG, CFA • Banks • Construction • Rubber Plantation • Tyres & Tubes • Oil & Gas (65) 6231 5845 [email protected] • Small & Mid Caps • Healthcare • Transport Luis HILADO TRINH Thi Ngoc Diep (65) 6231 5848 [email protected] (84 28) 44 555 888 x 8208 NG Li Hiang • Telcos [email protected] (65) 6231 5840 [email protected] • Technology • Utilities • Construction • Banks NGUYEN Thi Sony Tra Mi LAI Gene Lih (84 28) 44 555 888 x 8084 (65) 6231 5832 [email protected] [email protected] • Technology • Port Operation • Pharmaceutical • Food & Beverage
NGUYEN Thanh Lam (84 28) 44 555 888 x 8086 [email protected] • Technical Analysis
April 2, 2018 27
Sheng Siong Group
APPENDIX I: TERMS FOR PROVISION OF REPORT, DISCLAIMERS AND DISCLOSURES
DISCLAIMERS This research report is prepared for general circulation and for information purposes only and under no circumstances should it be considered or intended as an offer to sell or a solicitation of an offer to buy the securities referred to herein. Investors should note that values of such securities, if any, may fluctuate and that each security’s price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from the relevant jurisdiction’s stock exchange in the equity analysis. Accordingly, investors’ returns may be less than the original sum invested. Past performance is not necessarily a guide to future performance. 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Without prejudice to the foregoing, the reader is to note that additional disclaimers, warnings or qualifications may apply based on geographical location of the person or entity receiving this report. Malaysia Opinions or recommendations contained herein are in the form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis. Singapore This report has been produced as of the date hereof and the information herein may be subject to change. Maybank Kim Eng Research Pte. Ltd. (“Maybank KERPL”) in Singapore has no obligation to update such information for any recipient. For distribution in Singapore, recipients of this report are to contact Maybank KERPL in Singapore in respect of any matters arising from, or in connection with, this report. 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MBKET Retail Research is intended for retail investors (http://kelive.maybank- ke.co.th) while Maybank Kim Eng Institutional Research is intended only for institutional investors based outside Thailand only. The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information. The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey may be changed after that date. MBKET does not confirm nor certify the accuracy of such survey result. The disclosure of the Anti-Corruption Progress Indicators of a listed company on the Stock Exchange of Thailand, which is assessed by Thaipat Institute, is made in order to comply with the policy and sustainable development plan for the listed companies of the Office of the Securities and Exchange Commission. Thaipat Institute made this assessment based on the information received from the listed company, as stipulated in the form for the assessment of Anti- corruption which refers to the Annual Registration Statement (Form 56-1), Annual Report (Form 56-2), or other relevant documents or reports of such listed company. The assessment result is therefore made from the perspective of Thaipat Institute that is a third party. It is not an assessment of operation and is not based on any inside information. Since this assessment is only the assessment result as of the date appearing in the assessment result, it may be changed after that date or when there is any change to the relevant information. Nevertheless, MBKET does not confirm, verify, or certify the accuracy and completeness of the assessment result. US This third-party research report is distributed in the United States (“US”) to Major US Institutional Investors (as defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) only by Maybank Kim Eng Securities USA Inc (“Maybank KESUSA”), a broker-dealer registered in the US (registered under Section 15 of the Securities Exchange Act of 1934, as amended). All responsibility for the distribution of this report by Maybank KESUSA in the US shall be borne by Maybank KESUSA. This report is not directed at you if MKE is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. 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UK This document is being distributed by Maybank Kim Eng Securities (London) Ltd (“Maybank KESL”) which is authorized and regulated, by the Financial Conduct Authority and is for Informational Purposes only. This document is not intended for distribution to anyone defined as a Retail Client under the Financial Services and Markets Act 2000 within the UK. Any inclusion of a third party link is for the recipients convenience only, and that the firm does not take any responsibility for its comments or accuracy, and that access to such links is at the individuals own risk. Nothing in this report should be considered as constituting legal, accounting or tax advice, and that for accurate guidance recipients should consult with their own independent tax advisers. DISCLOSURES
Legal Entities Disclosures Malaysia: This report is issued and distributed in Malaysia by Maybank Investment Bank Berhad (15938- H) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets and Services License issued by the Securities Commission in Malaysia. Singapore: This report is distributed in Singapore by Maybank KERPL (Co. Reg No 198700034E) which is regulated by the Monetary Authority of Singapore. Indonesia: PT Maybank Kim Eng Securities (“PTMKES”) (Reg. No. KEP-251/PM/1992) is a member of the Indonesia Stock Exchange and is regulated by the Financial Services Authority (Indonesia). Thailand: MBKET (Reg. No.0107545000314) is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and Exchange Commission. Philippines: Maybank ATRKES (Reg. No.01-2004-00019) is a member of the Philippines Stock Exchange and is regulated by the Securities and Exchange Commission. Vietnam: Maybank Kim Eng Securities Limited (License Number: 117/GP-UBCK) is licensed under the State Securities Commission of Vietnam. Hong Kong: KESHK (Central Entity No AAD284) is regulated by the Securities and Futures Commission. India: Kim Eng Securities India Private Limited (“KESI”) is a participant of the National Stock Exchange of India Limited and the Bombay Stock Exchange and is regulated by Securities and Exchange Board of India (“SEBI”) (Reg. No. INZ000010538). KESI is also registered with SEBI as Category 1 Merchant Banker (Reg. No. INM 000011708) and as Research Analyst (Reg No: INH000000057) US: Maybank KESUSA is a member of/ and is authorized and regulated by the FINRA – Broker ID 27861. UK: Maybank KESL (Reg No 2377538) is authorized and regulated by the Financial Conduct Authority.
Disclosure of Interest Malaysia: MKE and its Representatives may from time to time have positions or be materially interested in the securities referred to herein and may further act as market maker or may have assumed an underwriting commitment or deal with such securities and may also perform or seek to perform investment banking services, advisory and other services for or relating to those companies.
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Thailand: MBKET may have a business relationship with or may possibly be an issuer of derivative warrants on the securities /companies mentioned in the research report. Therefore, Investors should exercise their own judgment before making any investment decisions. MBKET, its associates, directors, connected parties and/or employees may from time to time have interests and/or underwriting commitments in the securities mentioned in this report.
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As of 2 April 2018, KESHK and the authoring analyst do not have any interest in any companies recommended in this research report.
MKE may have, within the last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or investment services in relation to the investment concerned or a related investment and may receive compensation for the services provided from the companies covered in this report.
OTHERS Analyst Certification of Independence The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the research analyst’s compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.
Reminder Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct its own analysis of the product and consult with its own professional advisers as to the risks involved in making such a purchase.
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Historical recommendations and target price: Sheng Siong Group (SSG SP)
3 Oct 27 Oct 13 Dec 27 Feb 29 Mar Hold : SGD1.1 Hold : SGD1.1 Sell : SGD0.9 Sell : SGD0.9 Buy : SGD1.2 1.1
1.1
1.0
1.0
1.0
0.9
0.9 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18
Sheng Siong Group
Definition of Ratings Maybank Kim Eng Research uses the following rating system BUY Return is expected to be above 10% in the next 12 months (excluding dividends) HOLD Return is expected to be between - 10% to +10% in the next 12 months (excluding dividends) SELL Return is expected to be below -10% in the next 12 months (excluding dividends)
Applicability of Ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies.
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Sheng Siong Group
Malaysia Singapore London New York Maybank Investment Bank Berhad Maybank Kim Eng Securities Pte Ltd Maybank Kim Eng Securities Maybank Kim Eng Securities USA (A Participating Organisation of Maybank Kim Eng Research Pte Ltd (London) Ltd Inc Bursa Malaysia Securities Berhad) 50 North Canal Road PNB House 777 Third Avenue, 21st Floor 33rd Floor, Menara Maybank, Singapore 059304 77 Queen Victoria Street New York, NY 10017, U.S.A. 100 Jalan Tun Perak, London EC4V 4AY, UK 50050 Kuala Lumpur Tel: (65) 6336 9090 Tel: (212) 688 8886 Tel: (603) 2059 1888; Tel: (44) 20 7332 0221 Fax: (212) 688 3500 Fax: (603) 2078 4194 Fax: (44) 20 7332 0302
Stockbroking Business: Hong Kong Indonesia India Level 8, Tower C, Dataran Maybank, Kim Eng Securities (HK) Ltd PT Maybank Kim Eng Securities Kim Eng Securities India Pvt Ltd No.1, Jalan Maarof 28/F, Lee Garden Three, Sentral Senayan III, 22nd Floor 2nd Floor, The International, 59000 Kuala Lumpur 1 Sunning Road, Causeway Bay, Jl. Asia Afrika No. 8 16, Maharishi Karve Road, Tel: (603) 2297 8888 Hong Kong Gelora Bung Karno, Senayan Churchgate Station, Fax: (603) 2282 5136 Jakarta 10270, Indonesia Mumbai City - 400 020, India Tel: (852) 2268 0800 Fax: (852) 2877 0104 Tel: (62) 21 2557 1188 Tel: (91) 22 6623 2600 Fax: (62) 21 2557 1189 Fax: (91) 22 6623 2604
Philippines Thailand Vietnam Saudi Arabia Maybank ATR Kim Eng Securities Inc. Maybank Kim Eng Securities Maybank Kim Eng Securities Limited In association with 17/F, Tower One & Exchange Plaza (Thailand) Public Company Limited 4A-15+16 Floor Vincom Center Dong Anfaal Capital Ayala Triangle, Ayala Avenue 999/9 The Offices at Central World, Khoi, 72 Le Thanh Ton St. District 1 Villa 47, Tujjar Jeddah Makati City, Philippines 1200 20th - 21st Floor, Ho Chi Minh City, Vietnam Prince Mohammed bin Abdulaziz Rama 1 Road Pathumwan, Street P.O. Box 126575 Tel: (63) 2 849 8888 Bangkok 10330, Thailand Tel : (84) 844 555 888 Jeddah 21352 Fax: (63) 2 848 5738 Fax : (84) 8 38 271 030 Tel: (66) 2 658 6817 (sales) Tel: (966) 2 6068686 Tel: (66) 2 658 6801 (research) Fax: (966) 26068787
South Asia Sales Trading North Asia Sales Trading Kevin Foy Andrew Lee Regional Head Sales Trading [email protected] [email protected] Tel: (852) 2268 0283 Tel: (65) 6636-3620 US Toll Free: 1 877 837 7635 US Toll Free: 1-866-406-7447
Malaysia Thailand Joann Lim Tanasak Krishnasreni [email protected] [email protected] Tel: (603) 2717 5166 Tel: (66)2 658 6820
Indonesia London Harianto Liong Mark Howe [email protected] [email protected] Tel: (62) 21 2557 1177 Tel: (44) 207-332-0221
New York India James Lynch Sanjay Makhija [email protected] [email protected] Tel: (212) 688 8886 Tel: (91)-22-6623-2629
Vietnam Philippines Patrick Mitchell Keith Roy [email protected] [email protected] Tel: (84)-8-44-555-888 x8080 Tel: (63) 2 848-5288 www.maybank-ke.com | www.maybank-keresearch.com
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