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Analysts: Steady Growth of Sheng Siong Group to Bring Over 20 Percent Upside!
Aspire, Hot Picks | 14 August 2015
By: Raymond Leung
Articles (142) Profile

All eyes on the street returned to Sheng Siong Group (SSG) as they announced their latest quarter. SSG has been favoured by analysts as a defensive stock with its strong dividend payouts. The stable growth by SSG has allowed analysts to reiterate their bullish view towards the group.

Stable Growth Shown in 2Q15

Source: Revenue of Sheng Siong Group, Financial Times

Source: Net Income of Sheng Siong Group, Financial Times

Revenue for the quarter grew 4.3 percent year on year (yoy) to $179 million. Gross profit margin increased by 0.5 percentage points to 25.2 percent as SSG puts more focus on bulk purchasing activities and better sales mix. Net profit surged by 23.1 percent yoy to $13.6 million, which was contributed by the favourable profit margin and contributions from the newly opened stores.

Penetrating the Low-End Mass Market
Low-end mass market has been long held by two supermarket chains; namely Dairy Farm’s Giant and NTUC FairPrice, which shared the same consumer group as SSG. SSG has done a great job penetrating the strongly held market; it has taken customers away from its competitors with its cheaper prices and value of products.

Source: Price Comparison, Maybank Kim Eng

Well Planned Growth in Place
SSG’s management has planned its growth that will be driving the performance of the group. To meet its goals, the group will be expanding its local presence as well as overseas. Currently, SSG has a joint venture (JV) in Kunming, China and is making good process. At least one store in Kunming that is managed by the JV is expected to open in 2H15.

Since late last year, SSG has been actively seeking new locations to open its outlets. Five were located since December 2014 and are all located within the vicinity of large residential areas. In 2016, two more stores will be opened and is expected to drive up its revenue.

A Defensive Stock
Source: Dividend History of Sheng Siong, Financial Times

Given the high dividend payout of 90 percent and growth in dividends, SSG is considered a well-liked defensive stock by analysts. Its growth plans are expected to lift the group as the stores and margin expansions are estimated to underpin the FY15 to FY17 earnings by 9 to 13 percent.

Analysts from Maybank Kim Eng Research initiated their coverage on SSG and have given it a “Buy” recommendation. Based on the target price of $1.07, SSG has a potential upside of 20.2 percent.

Trained in fund management, Raymond is familiar with shares and various investment vehicles.

Please click here for more information about this author.

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