Sheng Siong: OCBC is bullish on the long-term growth prospects of the grocery retailer, citing its productivity initiatives, expansion into China, and strong management execution ability.
While the grocery retailing industry in Singapore has always faced a margin squeeze, the house highlighted that Sheng Siong’s productivity drive, ranging from enhancements in warehousing systems to improvements in retail format, could help it manage margins effectively.
In line with government’s support for operational efficiency under its second Retail Productivity Plan, the group aims to reduce its cashiers by about 130, and replace a third of its check-out counters with self-payment ones.
The group is also paying attention to the e-commerce space, a key avenue for organic growth, but is keeping its distribution reach tight for now until it can be cost-effective.
The broker is optimistic about the supermarket chain's expansion into China, where its JV with Kunming LuChen has obtained green light from local authorities earlier this year to operate supermarkets in China.
It is confident that management has strong execution ability and track record to drive growth through the various avenues, and thereby maintains a Buy rating with a TP of $0.95 on the grocery retailer.
The counter is currently trading at 22x FY15 consensus P/E.
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