Sheng Shiong profits to grow at single-digit levels

This is despite closure of two big stores.

Sheng Shiong is closing two big stores - The Verge and Woodlands Centre - next year, but MayBank KimEng is still expecting the company to report FY17E/18E revenue growth, albeit at single-digit levels, and earnings to remain resilient due to weak supplier power and a continuing shift to more fresh food.

The brokerage firm notes that the main risk to the positive outlook is a breakout of price wars, which it believes has low probability for now.

"We cut FY16E-17E earnings by 3% as we adjust psf revenue assumptions to reflect more subdued demand expectations," it said.

3Q16 sales growth was the weakest since 2013, and seasonality has also tapered to just +7% (vs past years’ 11-12%). Management attributed this to consumer belt-tightening for the most part, and partly due to rising layoffs of foreign workers. But earnings was resilient.

Margins were maintained on lower product cost and more sales of fresh foods.

Supermarkets’ bargaining power with suppliers has strengthened amidst weak demand, while rising labour and rental costs have also moderated.