SHENG SIONG GROUP | SELL (INITIATE)
MARCH 19 CLOSE: $1.06
TARGET PRICE: $0.95
Maybank Kim Eng, March 18
We believe Sheng Siong is not immune to a slowdown in consumer spending amid economic deceleration that the Maybank Kim Eng Economics team anticipates this year, which come on top of rising e-commerce competition and changing dining habits.
We pencil in more-conservative-than-street estimates on new-store sales and same-stores-sales (SSS) contributions for FY2019-2020.
Although we expect an 8.4 per cent year-on-year revenue growth boost in FY2019, we believe tepid SSS contributions and smaller basket values will be drags on subsequent revenue growth.
Our recent bespoke consumer survey points to a growing frequency of home-delivered cooked meals in Singapore, backed by emerging food delivery services. In our view, these are early indicators of a structural change in consumers' dining habits. Such a trend is detrimental to supermarkets' fresh-produce sales.
Given small price differences between NTUC FairPrice and Sheng Siong, and the proximity of their stores, we see limited consumer conversion to Sheng Siong when they trade down in an economic downturn.
Risks to our view include higher-than-expected new store and SSS contributions due to improved consumer sentiment and reduced competition.
SINGAPORE AIRLINES (SIA) | HOLD (MAINTAINED)
MARCH 19 CLOSE: $9.85
TARGET PRICE: $10.10
UOB Kay Hian, March 19
Underlying demand for passenger traffic remained buoyant in February but cargo traffic registered the biggest decline in FY2019.
Even so, the grounding of the Boeing 737 Max remains the biggest concern, not just on foregone revenue but also of future demand. The grounded aircraft make up about 20 per cent of SilkAir's current seat capacity.
SIA is likely to add flights to offset the lost capacity from the grounded aircraft. We still estimate a $110-130 million in revenue shortfall as well as about $30 million in fixed costs until this year-end.
Boeing is reportedly offering a software solution by April and if all goes well, the B737 Max aircraft might be cleared to operate by July. We also believe that SIA is likely to receive compensation for the grounded aircraft.
We do not envisage any positive catalyst for at least one more quarter. There is also the risk that load factors on the B737 Max would be low for some time, even if the aircraft is cleared to fly. Entry price remains at $9.
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