Sheng Siong

Sheng Siong: CIMB upgrades to O/p from neutral with $0.75 TP. Note that all 57 Shop n Save stores will be re-branded as Giant stores from today. However, the West Mall store will be converted into a Cold Storage store. Shop n Save, Giant and Cold Storage are all Dairy Farm brands. Note that this development highlights Sheng Siong’s strength in the budget segment. It is a tacit admission by Shop n Save of the difficulty of competing in this space and suspect its troubles lie with the pre-dominantly Mandarin-speaking budget consumers identifying better with Sheng Siong’s brand. Re-branding as the more popular Giant brand seems a desperate attempt to gain consumer acceptance. Further, Sheng Siong’s low-margin strategy makes it difficult for any competitor to compete without an efficient cost structure. Shop n Save’s re-brand may also be motivated by the need to mitigate cost pressures by consolidating overheads. House unclear if Dairy Farm still intends to compete in the budget segment as Shop n Save was its flagship brand in that space. Giant is a hypermarket, competing more on the breadth of offerings, rather than price. Overall, house more positive on Sheng Siong given evidence of its dominance in the budget segment. The beauty of a low-margin strategy is that it is improbable a new entrant can muscle in by undercutting price. House upgrade to Outperform and think Sheng Siong warrants a higher multiple from its strong competitive position. See catalysts as earnings delivery from new stores and continued store expansion.