Sheng Siong Group - CIMB Research 2015-10-22: Bumper year for new stores

Sheng Siong Group - CIMB Research 2015-10-23: Bumper year for new stores SHENG SIONG GROUP LTD OV8.SI 

Sheng Siong Group - Bumper year for new stores 

  • 3Q15’s healthy sales growth of 7.3% yoy was mostly driven by new stores (+6.2%), with same-store sales (+1.1%) still reflecting sluggish retail spending. 
  • 3Q15 earnings (+18.7% yoy) beat our expectations by 7%, mostly coming from government grants (for productivity improvement programmes) and other income. 
  • We maintain our forecasts and target price pending tomorrow’s analyst briefing. 

Topline growth mostly from new stores 

  • Sales from five new stores (6.2%) drove overall topline growth (+7.3% yoy). Given that one store opened in Dec-14 and the other four opened in 1H15, we can expect these stores to continue to drive topline growth in 4Q. 
  • Against a backdrop of weak retail sales in Singapore, same-store sales remained sluggish at +1.1% yoy, but did improve qoq (2Q15: +0.3%; 1Q15: +2.9%). 
  • Other factors that impacted sales include 
    1. liquor sale ban, 
    2. weaker ringgit impacting sales at Woodlands, and 
    3. lower footfall at stores due to renovation works in the vicinity. 

Gross margins still healthy 

  • Gross margin remained healthy at 24.3% (3Q14: 24.2%; 2Q15: 25.2%), but dipped slightly qoq due to seasonal factors (push for higher volumes in Lunar Seventh Month) and higher input costs from a strong US$. Keener competition from SG50 celebrations also resulted in slightly lower selling prices, a trend that is likely to continue into 4Q. 

Tight control over operating expenses 

  • Management has always maintained that it is able to consistently keep opex in check; it has not disappointed and the company continues to benefit from lower utilities due to lower oil prices. Opex as a % of sales in 3Q was 16.9% (vs. average of 17.2% over the past four quarters). 

Secured one new store 

  • The group secured a new store at Dawson Road (~4,300 sf, expected opening in Nov 15). This will be SSG’s fifth new store this year. Whilst this is not as big as the 10,000 sf Tampines new store that they bought (potential to expand to 40,000 sf), the positive is the Dawson store is a lease and not a store purchase. This should add some relief to the concern that Sheng Siong cannot grow without buying new stores. 
  • In total, the five new stores for the year adds 26,000 sf of additional GFA (or 6.5% increase in total GFA). These five stores will provide the engine for growth through 2016. 

Maintain Add pending analyst briefing 

  • No change to our target price and Add rating. We will provide an update following tomorrow’s analyst briefing.

Kenneth NG CFA CIMB Securities | Jonathan SEOW CIMB Securities | http://research.itradecimb.com/ 2015-10-22
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 0.93 Same 0.93