Thursday, June 14, 2012

Sheng Siong Group: Time to revisit SSG (OCBC)

Sheng Siong Group: Time to revisit SSG
• Emergence of an attractive entry point
• Growth prospects remained unhindered
• High possibility of interim dividend

Sell-offs to cover other losses
The share price of Sheng Siong Group (SSG) fell 17.3% in less than two months from our last report compared to a drop of 6.5% for Singapore’s barometer (FTSE STI Index). With the rest of the broad market performing poorly, we deem the proportionally greater sell-off to be related to loss-covering as investors use gains from SSG since its IPO to cover other unprofitable ventures.

Nonetheless, the sell-offs have resulted in an attractive entry point for SSG, and we base our argument on three main factors: 1) shifting consumer spending patterns, 2) improving and promising operations, and 3) likelihood of interim dividend.

1. Shifting consumption habits
With the macro environment remaining shaky, we have seen a drop off in retail sales on a trend basis especially in the F&B services segment. Persistence in this regard will benefit supermarkets as they benefit from a greater number of consumers cooking at home more often.

2. Improving operations
Competition amongst the Big 3 supermarkets has started to ease up as evidenced by a drop-off in the number of items in weekly promotions, and expect gross profit margins to start inching higher above the 21% mark. Furthermore, SSG’s new stores have received favourable responses and are expected to breakeven within a four-month period.

3. High possibility of interim dividend
Management had previously stated its intention to disburse the entire proceeds of a one-time S$10.4m gain from the sale of its old Marsiling warehouse facility to shareholders. We believe that an opportune time for this disbursement has emerged as it would reinvigorate interest in the counter and repay the faith of its shareholders.

Upgrade to BUY
With its FY12 revenue expected to grow unabated and a 90% dividend payout ratio, SSG’s proposition as a quality, defensive play with attractive dividends (FY12F: 7.1%) remains unaltered. As we leave our FY12 projections unchanged, we upgrade our rating on SSG to BUY on valuations grounds with the same fair value estimate of S$0.49.

Source/Extract/Excerpts/来源/转贴/摘录: OCBC Investment Research
Publish date: 14/06/12

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Warren E. Buffett(沃伦•巴菲特)
Be fearful when others are greedy, and be greedy when others are fearful
别人贪婪时我恐惧, 别人恐惧时我贪婪
投资只需学好两门课: 一,是如何给企业估值,二,是如何看待股市波动
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高估期间, 卖对, 不卖也对, 买是错的。
低估期间, 买对, 不买也是对, 卖是错的。

Tan Teng Boo

There’s no such thing as defensive stocks.Every stock can be defensive depending on what price you pay for it and what value you get,
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