Initiate coverage with Add rating. The research house has initiated coverage on Senheng with an Add and a target price (TP) of RM1.00 (17.4x CY23F P/E, a 20% discount to CGS-CIMB’s consumer discretionary sector’s 5-year mean P/E of 21.8x).
Despite Senheng’s leading market position in Malaysia (2021), the research house still applies a discount to account for the competitive nature of the retail E&E sector and its low barrier to entry.
Downside risks identified with this counter are, supply disruptions, slowdown in consumer E&E sales, and intensifying competition.
Largest chain retailer of consumer E&E products in Malaysia. Senheng New Retail Bhd (Senheng) is Malaysia’s largest consumer electrical and electronics (E&E) retailer by revenue (report by Smith Zander in 2021), with a total of 105 outlets nationwide as at end-2021. Besides physical stores (accounted for 89.2% of FY21 revenue), Senheng retails products via online retail channels, including its self-operated app and online store, as well as third-party marketplaces Shopee and Lazada.
Differentiating itself through a seamless retail model. Despite a highly competitive operating environment in the consumer E&E retail space, Senheng’s key advantage is its “seamless retail model” with full integration of its physical, online and backend operations (in-house logistics network), in the research house’s view. Since 2014, Senheng uses business intelligence to drive business decision-making, while providing uniform pricing across all sales channels (omnichannel marketing). Its sales are backed by its strong PlusOne loyalty programme (c.90% of its FY21 revenue).
Strong operating scale with wide range of products. Over the years, Senheng has built a solid standing and strong operating scale, leveraging on its economies of scale and established relationships with brand principals to offer a wide range of consumer E&E products across all key segments (home appliances, digital gadgets and audio-visual equipment) — it carried c.10k stock keeping units (SKUs) from >280 brands (May 2021). In our view, this is a differentiating factor, as it is able to cater to consumers’ E&E needs via a wide product offering (vs. competitors).
Future strategies to cement its market leadership position. CGS-CIMB Research projects Senheng to post 12.7% revenue and 13.4% core net profit CAGR over FY21-24F, backed by an 18.1% CAGR in retail floor space and 10.1% CAGR in online channel revenue. Their forecasts are based on its near-to-medium-term strategies, including: i) upgrading/expanding its physical stores, ii) growing its exclusive and own-brand product portfolio, iii) better membership stickiness by enhancing PlusOne, and iv) upgrading its physical and digital backend infrastructure leading to better operational efficiencies.
