Sheng Siong Group - Maybank Kim Eng 2015-09-23: Three-in-One Promotion


Sheng Siong Group - Three-in-One Promotion 

  • Secured one more store location, bringing its total to 39. 
  • Expect further cost savings from new self-payment counters & CNY/MYR weakening. Raise EPS by 1-2%. 
  • Reiterate BUY with TP of SGD1.07, at 26x FY16F P/E. Expect catalysts from store additions. 

Another Store Secured for this Year 

  • Sheng Siong has secured another store location in Queenstown. This brings its total number of stores to 39. The four that it opened in 1H15 are performing to expectations, said management. We forecast that these five new stores will generate SGD16m sales in FY15. 
  • Sheng Siong continues to look out for new locations and we expect more by year-end. We believe it will continue to capitalise on Giant’s weakness. Giant is still consolidating and has not participated in any bidding for premises in the last two years. 

Improving Efficiency; Benefiting from Weak MYR 

  • Sheng Siong is working to reduce its cashiers by about 130, by replacing a third of its check-out counters with self-payment ones. So far, it has rolled out these new counters at two of its stores. The timeframe for this project is two years with a total cost of SGD3m, partly subsidised by the government. We expect cost savings of less than SGD1m pa for FY16-17. 
  • In addition, Sheng Siong is benefiting from MYR depreciation, as an estimated 10% of its goods is imported from Malaysia. If MYR remains weak against SGD and assuming no price cuts, our net profit estimate would be SGD57m for FY15, instead of SGD55.5m. 

Maintain BUY with TP of SGD1.07 

  • We raise FY16-17 EPS by 1-2% to reflect its new store and cost savings. The stock trades at 20x FY16F P/E. 
  • Maintain BUY with TP still at SGD1.07, at 26x FY16F P/E or a 10% premium to peers’ average. 
  • Sheng Siong remains the supermarket for the masses with the widest margins. Earnings are also defensive in a slowdown.

Truong Thanh Hang Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2015-09-23
Maybank Kim Eng Analyst Report BUY Maintain BUY 1.07 Same 1.07