Sheng Siong could open more than 6 stores in 2018

If its bids for 2 stores in Bukit Batok and Sumang Lane win, its store count could grow to more than 50.

CGS-CIMB analyst Cezzane See found that Sheng Siong has two pending bids for stores at least 10,000 sqft in size. It placed a bid of $82,100 and $54,000 for a store in BT Batok East Avenue 6. It also participated in the tender for a Sumang Lane store and placed bids of $80,200 then $93,000.

According to CGS-CIMB, Sheng Siong Group’s tender pipeline is robust, because the pipeline for new stores is “still promising” given there are at least 10 bids available in 2018.

“If successful, the wins could take Sheng Siong’s number of stores beyond the 50-store target by end-FY2018, and beyond six new store openings in FY2018 (just shy of the 8 store additions in FY2012),” See said.

Sheng Siong ended the first quarter of 2018 with 48 stores, five units higher than Q1 2017. Revenue per square foot is at $226, whilst the weighted average area is at 436 sqft.

During 2H2016 to 1H2017, Sheng Siong had no new store openings due to intense competitive environment led by irrational rental bids by its smaller peers. See noted that the competition eased in the middle of 2017 and the bidding environment has remained rational thus far.

“We believe this is positive for Sheng Siong as it is generally reluctant to overbid for the sake of expanding. Hence, a rationale bidding environment improves Sheng Siong’s odds of winning store bids, in our view,” she added.

Meanwhile, Sheng Siong said consumer sentiment, which saw recovery since 2H2017, is unchanged. See commented, “This is encouraging, as this bodes well for same-store-sales growth for FY2018, in our view.”

The analyst noted that in 1Q2018, Sheng Siong’s same-store-sales growth was 5.6%, largely due to a recovery in consumer sentiment, with help from expansion of its Block 506 Tampines, a pick-up in sales from a re-opened Loyang store, and the migrating customers (from its closed Verge and Woodlands Block 6A) to Jalan Berseh and Woodlands Block 301 stores.

Moreover, the grocery giant’s capex needs could ease after 2018. The dividend payout for 2017 was lowered to c.70% (vs. historical average of c.90%) in anticipation of the $16m capex required for the distribution centre extension and the competitive 2017 environment, CGS-CIMB said.

“However, barring any special projects and if the consumer sentiment remains healthy, such cash preservation measures may ease post FY2018F, which could lead to a higher dividend payout,” it added.