Sheng Siong Group to grow slowly with current retail strategy

Dim expansion prospects locally and overseas.

According to Maybank Kim Eng's assessment, Sheng Shiong will need a drastic strategy shift if it plans to get serious in meeting its store opening and expansion targets.

"There is limited potential for growth on the horizon, barring a significant change in its business strategy," said Maybank.

The research firm noted that management's previous target was to expand its retail gross floor area by around 10% each year.

"But to date there were no new stores and we believe it is now virtually impossible to meet this target in 2013. Even in the next two years, we think this goal will be too difficult to achieve. The company's strategy of targeting mainly budget consumers means it is reliant on lower rental locations, an approach we believe is becoming increasingly restrictive," said Maybank.

Overseas, Sheng Siong's expansion prospects are also looking grim.

"While expansion into neighbouring countries was mooted as a possibility earlier, Sheng Siong held back as it has no prior experience. Besides, the markets in Malaysia and Indonesia are dominated by several big players and it would be an uphill task for the company to muscle in, not o mention significant execution risks. Management appears to be focusing on growing Internet retailing, but we are uncertain whether that would truly take off," said Maybank.