Sheng Siong Group: Still an attractive dividend play

Clear growth drivers going forward.  We hosted SSG’s CEO and CFO for pulse of Asia Conference in Singapore and a two-day NDR in Hong Kong, which drew keen interest from investors.  Population growth, store expansion, margin improvement and e-commerce will be SSG’s key growth drivers going forward.  SSG is a beneficiary of rising interest rates – a 1% rise in interest rates will raise  earnings  by 3%.

Revenue drivers in place, margins will improve.  With Singapore’s population projected to increase to 6.9m by 2030, SSG targets to expand its store network to 50.  Management believes that it can increase its network intensity further in the northern eastern and central parts of Singapore.  We also see margins improving going forward on better operational efficiencies and cost management.  Margin expansion will come from better product mix of fresh vs dry food, increasing contribution of house brands,more direct purchasing and bulk handling initiatives.  

E-commerce is kicking off and could be a game changer.  Developments for SSG’s e-commerce initiative have now accelerated.  SSG has completed the framework for e-commerce and is due to roll out the e-commerce pilot test soon.  We believe this can be a game changer for both SSG (better profitability) and consumers (time saver) alike as the pace of life in Singapore intensifies.

Maintain BUY, TP S$0.78.  We like SSG for its stable earnings base, consistent dividend payout and yield of 4.0%.  SSG currently trades at 22.4x FY13F PE, with an attractive ROE of 27.3%. Maintain BUY for a 15% upside to our revised TP of S$0.78, which is based on 25x blended FY13F/FY14F earnings.