Sheng Siong Group - CIMB Research 2016-02-24: 4Q15 first take: earnings beat on tax refund

SHENG SIONG GROUP LTD OV8.SI

Sheng Siong Group - 4Q15 first take: earnings beat on tax refund

4Q15 earnings (S$14.6m, +24% yoy) beat our expectation by 10%, mostly on tax refunds. Ex-refunds, 4Q earnings would have been in line at 102% of our forecasts.
Biggest surprise was earlier-than-expected occupation of Yishun J9 store (18.6k sf, 4% of end-15 GFA). Operations likely to start in 2Q16 instead of mid-2017 originally.

Sheng Siong reported another strong quarter (net profit of S$14.6m, +23.9% yoy) on the back of improved gross margins (4Q15: 25.0%; FY14: 24.2%) and higher other income. There was a S$1m net tax refund in 4Q which further lifted an already strong set of results.
FY15 net profit (S$56.8m, +19.3% yoy) formed 102% of our and consensus forecasts.

New stores contributed positively but were especially let down by weak same store sales growth (SSSG) in 4Q. 4Q SSSG contracted 1.7% (9M SSSG +1.4%), which comes as a big negative surprise even amidst a weak retail climate.
Overall, FY15 sales grew 5.3% yoy, made up by new stores (4.6%) and a mere 0.7% from SSSG.
Management cited renovation works at a sizeable Clementi store (28k sf, 6.5% of end- 15 total GFA) in 4Q15 as the main culprit for the contracting SSSG.
We are hopeful that the decline is a blip and not the start of a negative trend, especially given Sheng Siong’s position as a budget retailer which should be beneficial in a weak macro environment.

The group just secured another store (3.5k sf) in Circuit Road. But the bigger surprise is the Yishun J9 store (18.6k sf), which the group now expects to start operating from 2Q16 instead of mid-2017 as originally planned after TOP was obtained earlier than expected.
Including the two latest new store announcements, this brings total new stores to eight since Dec 14. Recall that the group added one store in Dec 14 and five throughout 2015. In total, these new stores add ~53k sf of additional GFA (a 13% increase in total GFA).

We continue to like the stock’s high dividends (4% yield), which we think are sustainable given its strong operating cashflow business. The company has net cash of S$126m as at end-FY15 and the biggest remaining capex is S$15m for Yishun J9.

No change to our target price (still based on 22x CY17 P/E, average 12M forward) and estimates pending tomorrow’s analyst briefing. Maintain Add.

Kenneth NG CFA CIMB Securities | Jonathan SEOW CIMB Securities | http://research.itradecimb.com/ 2016-02-24

CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 0.95 Same 0.95