Sheng Siong benefits from more consumers cooking at home

Gross profit margins are expected to start inching higher above the 21% mark.

Changing consumer spending patterns and improving operations could change things for SSG. Also, a drop-off in the number of items in weekly promotions and gross profit margins expected to start inching higher above the 21% mark. SSG’s new stores are likely to recover capital within a four-month period.

Here's more from OCBC Investment Research:

Sell-offs to cover other losses. The share price of Sheng Siong Group fell 17.3% in less than two months from the last report compared to a drop of 6.5% for Singapore’s barometer. With the rest of the broad market performing poorly, there seem to be a proportionally greater sell-off to be related to loss-covering as investors use gains from SSG since its IPO to cover other unprofitable ventures.

Nonetheless, the sell-offs have resulted in an attractive entry point for SSG, and the argument is based on three main factors: the shifting consumer spending patterns, an improving and promising operations, and likelihood of interim dividend.

Shifting consumption habits. With the macro environment remaining shaky, a drop off in retail sales is seen on a trend basis especially in the F&B services segment. Persistence in this regard will benefit supermarkets as they benefit from a greater number of consumers cooking at home more often.

Improving operations. Competition amongst the Big 3 supermarkets has started to ease up as evidenced by a drop-off in the number of items in weekly promotions, and expect gross profit margins to start inching higher above the 21% mark. Furthermore, SSG’s new stores have received favourable responses and are expected to breakeven within a four-month period.

High possibility of interim dividend. Management had previously stated its intention to disburse the entire proceeds of a one-time S$10.4m gain from the sale of its old Marsiling warehouse facility to shareholders. This is an opportune time for this disbursement to emerge as it would reinvigorate interest in the counter and repay the faith of its shareholders.

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