• Maintain BUY, new SGD1.88 TP from SGD1.86, 22% upside and c.4% yield. We remain positive on Sheng Siong as it continues growing its footprint on the proposed acquisition of Jelita Property from DFI Retail Group (DFI SP, BUY, TP: USD2.61). Store network continues to expand and we see a slight positive on the latest proposed acquisition. The stock trades attractively at -1SD (c.17x) from its historical mean forward P/E of c.19x.

• Buys two properties from DFI. SSG has announced that it is proposing to acquire 100% of Jelita Property, owned by DFI for SGD50.2m. Jelita Property is primarily in the business of real estate development and owns two properties in Singapore comprising of eight strata ground floor units of Siglap V located at 2 First Street, and one Housing & Development Board (HDB) shop unit at 181 Lorong 4 Toa Payoh. Jelita Property’s net profit after tax for the six-month period ending 30 Jun 2024 was c.SGD3m. Under the proposed acquisition, DFI would lease back all eight units at Siglap V. DFI currently occupies the units at Siglap V that houses both its CS Fresh supermarket and Guardian Health & Beauty outlets. Its Giant outlet at the Toa Payoh HDB property is now closed. The acquisition is in line with SSG’s strategy to operate supermarkets in areas where its potential customers reside. It also allows SSG to open additional stores at Toa Payoh, receive additional rental income from the lease back at Siglap V, as well as benefit from long-term capital appreciation opportunities from the assets.

• Slight positive. We see a slight positive for SSG over this acquisition. Firstly, this acquisition will provide an opportunity to open one new outlet at Toa Payoh. It will also enjoy additional rental income through a leaseback agreement with DFI for its CS Fresh and Guardian Health & Beauty outlets. Most importantly, in our view, Jelita Property is profitable, which will add to SSG’s earnings upon completion of the acquisition.

• Earnings and TP raised slightly. We raise FY25F-26F earnings by 2% and 3%, having imputed the impact of an additional outlet at Toa Payoh, as well as rental income earned from Siglap V. Our TP, based on a 21x blended FY24F- 25F P/E, is also raised to SGD1.88 as a result.

• Key downside risks to our EPS estimates include slower-than-expected store openings, lower sales demand and per sq ft traction, and the inability to maintain GPM at current levels. However, we expect SSG’s performance to remain resilient as it targets the mass market value segment, which is seeing increased downtrading in a soft consumption environment. Our TP includes a 2% discount to the intrinsic value, as SSG’s ESG score of 3.0 is below the 3.1 country median.

Source: RHB Research - 3 Oct 2024