Sheng Siong (technical)

Sheng Siong: UOBK has an unrated report. Notes the group has opened 6 new stores ytd, increasing its total retail area by 43k sf to 391k sf (+12.4%), exceeding mgt’s target of 10% growth in store space. Tips more stores to be rolled out in 4Q12 and early ’13. Highlights Sheng Siong’s gross margin has recovered from 20.8% in 1Q12 to 21.9% in 2Q12, on the back of easing competitive pressure. Sees further room for margin expansion, as Sheng Siong embarks on the following initiatives, i) increasing the mix of higher margin fresh produce, ii) raising direct procurement of fresh produce from suppliers to 80% from 50% currently, iii) increasing the range of higher margin house brands (avg margin of ~28%). But valuations are higher than peers (Sheng Siong at 18.1x FY13e P/E, vs peers’ 9.7x P/E, though consensus forecasts FY13e dividend yield of 4.9%. Technically, UOBK notes the stock is currently forming higher lows and a break above $0.49 points to potential test of resistance at $0.55.