“Given market leader NTUC FairPrice stated in the press release that the initiative is to ‘serve to moderate the cost of living by acting as an industry benchmark for prices of everyday essentials’, we expect SSG and peers to adjust grocery prices accordingly to the new normal,” says analyst Sze Jia Min in a Wednesday report.
The way Sze sees it, FairPrice’s move will make it increasingly difficult for SSG to defend its market share as well as grapple with shrinking basket values.
In addition, Sze expects consumer sentiment to remain subdued for the rest of 2019, dragged by a tepid economic outlook.
Maybank is expecting “weak” GDP growth at 1.2% in 1Q19, compared to 1.9% a quarter ago in 4Q18 and 4.7% a year ago in 1Q18.
“The combination of price competition and weak macroeconomic factors points to an expected shrinking of basket values for the supermarket industry, and we believe SSG will not be immune to these headwinds,” Sze says.
As at 1.35pm, shares in Sheng Siong are trading flat at $1.05, implying an estimated price-to-earnings ratio of 21.6 times and a dividend yield of 3.2% for FY19.
