Meanwhile, the group remains a defensive play amid rising inflation and slower economic growth.
Though the demand for groceries will continue to normalise in 2023 from Covid-19, this could potentially be supported by a shift in consumption patterns as consumers focus on items that are value for money due to inflationary pressures and a higher cost of living.
Moreover, grocery sales could be supported by the inflation offset measures announced during the Singapore Budget 2023 such as the GST Voucher scheme as well as the Assurance package.
The group has reported stable margins so far, expanding from 27.4% in FY2020 to 29.7% in 1HFY2023 ended June, which underscores its pricing strategy and cost management.
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To this end, the team expects the group’s gross margin to remain stable with room for further improvement. This is as Sheng Siong continues its margin enhancement initiatives by improving sales mix, increasing its selection and types of house brand products and bulk purchases, the team adds.
“We expect store growth to pick up next year, supported by the ramp up in supply of HDB estates,” the team continues.
Sheng Siong is slated to open a new store in Kunming, China by the end of 2Q2024, bringing its total store count to six in the country.
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As at 1HFY2023, the group’s operations in China remained profitable, which was supported by its older stores.
“Sheng Siong sees strong growth prospects in its Chinese operations, though the margin profile is lower compared to its Singapore stores given its current size and scale in China,” says the team.
“In Singapore, we note that the pace of tender process for new commercial units by HDB is slower than expected, though there are six more expected to be put out for tender this year,” it adds. “Year-to-date, Sheng Siong only opened one new store in 1Q2023 at 91 Jalan Satu. We now expect Sheng Siong to open only two new stores in Singapore this year (versus our previous forecast of three) and three new stores in 2024.”
As at 12.37pm, shares in Sheng Siong are trading 2 cents higher or 1.32% up at $1.53.
