Malaysia, A Stepping Stone To Sheng Siong's Regional Ambitions
In line with our expectations that the limited growth prospects in Singapore will prompt local supermarket retailer Sheng Siong Group to expand abroad, it is reportedly planning to establish a joint venture to make its foray into Malaysia. Sheng Siong, which operates 25 supermarkets in Singapore, aims to set up at least 50 outlets in Malaysia over the longer term. While Malaysia may not be one of the most exciting retail prospects in the region, it nonetheless represents a stronger growth opportunity for Sheng Siong and should provide a greater boost to its volume sales.
Sheng Siong's announcement that it is to venture into Malaysia comes as little surprise to us. In an earlier article ( see 'Limited Growth Prospects Prompts Sheng Siong To Offer Big Dividend Carrot', August 12), we highlighted two neighbouring mass grocery retail (MGR) markets namely Malaysia and Indonesia that are likely to emerge on Sheng Siong's investment radar as it hunts for more exciting opportunities abroad. Although Malaysia may not share a similar compelling long-term retail growth story as that of the other immature and high-growth MGR markets such as Vietnam and Indonesia due to its relative maturity ( see chart), its stronger retail growth prospects, thanks to a continued middle-class expansion, nonetheless make it an attractive proposition for Sheng Siong. The relative appeal of Malaysia as compared with Singapore is borne out in our retail growth forecasts. By 2016, Malaysia's MGR sales are forecast to grow at a compound annual average rate of 7.0%, outperforming Singapore's MGR growth forecast of 2.2% on compound annual average terms.
The appeal of the Malaysian MGR sector is further accentuated by the local government's initiatives to support the development of the sector. The Malaysian government has designated the retail sector as one of the key focus areas under the economic transformation programme and is targeting to increase the wholesale and retail sector's contribution to gross national income from MYR57.2bn (US$18.3bn) per annum in 2009 to MYR165bn (US$52.7bn) by 2020. A proposed government initiative, for instance, is the upgrading of transport and infrastructure to facilitate retail distribution, which should encourage further growth in the sector.