Sheng Siong

Sheng Siong: Maybank KE cuts to Sell from Hold, slashes TP to $0.58 from $0.74. Says while it admires Sheng Siong as a well run company with great efficiency, this hardly justifies the stock’s current lofty valuations of 22x P/E, and its implied dividend yield of just 4% can be achieved elsewhere. Notes limited growth potential for Sheng Siong in the horizon, barring a significant change in its business strategy. Mgt is unlikely to meet its 2013 target to expand retail gfa by ~10%, given no new stores to date. The co’s strategy of targeting mainly budget consumers means it is reliant on lower rental locations, an approach that is becoming increasingly restrictive. Meanwhile operating cost pressure is mounting due to rising staff wages and rental, the two biggest cost components. The house estimates a 5% increase in staff cost last year would have decreased 2012 profit by 7.5%. Believes the market is too optimistic on Sheng Siong’s earnings growth, and imminent downgrades will be a negative share price catalyst.