Compiled by Lynette Tan
SHENG SIONG GROUP | BUY
TARGET PRICE: $1.25
FEB 26 CLOSE: $1.09
DBS EQUITY RESEARCH, FEB 26
Growth continues to be led by new stores and cost efficiencies. Ten new stores were opened last year, bringing the total Singapore store count to 54 as at end-December 2018.
Sheng Siong's growth strategy is to open new outlets in areas in which it has no presence.
The near-term outlook for new supermarket supply in Housing Board estates looks good with five outlets up for tender in the next six months.
We do not think online grocery retail will pose a serious threat to Sheng Siong for now as (i) Sheng Siong's target customers are less of the millennials who are open to online grocery shopping;
(ii) warehouses of online grocery retailers are relatively small compared to Sheng Siong; and
(iii) the online market is small currently and will take time to gain share from brick-and-mortar stores rather than ramp up rapidly.
For potential catalysts, we believe that Sheng Siong with its decent store network and logistics chain could be a takeover target for online players eventually. Online players such as Alibaba's Hema and Amazon (Whole Foods) are taking the online-to-offline route and are operating physical stores. We see scope for higher dividend payout if there is excess cash on its books.
Key risks to our view include revenue growth led by new store openings. Excessive discounts and promotions in the market by competitors will also result in lower margins.
AEM HOLDINGS | BUY
TARGET PRICE: $1.24
FEB 26 CLOSE: $1.10
Maybank Kim Eng, Feb 26
Amid an expected slowdown of HDMT test handlers (TH) sales, Q4 2018 profit after tax and minority interests (Patmi) fell 55 per cent year on year on the back of a 33 per cent drop in revenue.
Still, FY18 Patmi of $33.5 million (+6.4 per cent) met our expectation.
Management had already flagged the slowdown in HDMT TH sales in prior quarters.
For estimated FY19, AEM continues to expect a lower level of HDMT TH sales compared to FY18.
We still see a potential recovery of HDMT TH sales in estimated FY20 due to completion of capacity expansion for a key customer in Israel; and launch of new chips and/or chip platforms.
Upside potential to our estimate could arise from further evidence of continued strong order wins ($140 million of order wins year to date) to be largely delivered within the first nine months of 2019 versus $115 million as at January 2018.
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