SHENG SIONG: Undertaking something large soon?

Excerpts from CGS-CIMB report

Analyst: Cezzane SEE

Sheng Siong Group Banking on the “homebody” trend ■ 1H20 net profit of S$74.8m was above, at 75.8%/77% of our/street FY20F EPS, led namely by exceptional same store sales growth. ■ We expect 2H to see strong yoy growth as long as Covid-19 prevails and Singapore embraces the “homebody” trend. Raise FY20-22F EPS. ■ We think defensive plays will trade at a premium. Reiterate Add, with a higher TP of S$1.95, now on 26.5x CY21F P/E (3 s.d. above average mean).

In 2Q20, the company drew down S$30m worth of loans from a S$50m three-year term loan, which was extended from a government agency in support of a national programme, despite being in a net cash position.

We believe SSG could potentially undertake a large project soon.

We maintain our capex forecasts until further guidance.

Defensive pick. Reiterate Add, with a higher TP of S$1.95

We raise our TP to S$1.95 (from S$1.65), based on a higher CY21F P/E of 26.5x.

While this represents close to 3 s.d. above SSG’s long-term mean (26.2x) we believe defensive plays like SSG (which is in a net cash position and is still growing its market share) will continue to be favoured, in view of the near-term macro uncertainties.

Potential re-rating catalysts include new store openings, better SSSG and higher dividends.

The reverse pose as downside risks.