SHENG SIONG GROUP LTD
OV8.SI
Sheng Siong Group - Within expectations
- 4Q15 results in line, growth driven by new stores and better margins
- Final DPS of 1.75 Scts declared
- Maintain BUY, TP S$1.01
4Q15 results in line.
- Headline earnings for FY15 and 4Q15 came in at S$56.8m (+19% y-o-y) and S$14.6m (+24%), in line with our estimates.
- Revenue increased by 5% y-o-y in FY15 (+5% y-o-y in 4Q15), led largely by contribution of new stores, which were less than two years old.
- SSSG for FY15 was 0.7% but -1.7% in 4Q15; the negative SSSG in 4Q15 was a reflection of weaker demand and renovation of its Clementi store which has since reopened.
Gross margins continue to expand.
- Gross margins gained 0.6ppt y-o-y to 25% in 4Q15, normalizing from 3Q15, where the haze situation had depressed margins on weaker harvest and higher input costs.
- Otherwise, FY15 generally saw margins expand from supplier discounts through lower food prices and more bulk purchase activities.
Opex increase mainly due to staff costs.
- Operating expenses increased 6.6% y-o-y for FY15 and 4Q15, largely due to staff costs.
- There was higher headcount to supplement new stores while better operating performance led to higher bonus provisions.
- The faster rate of opex increase in FY15 vis-à-vis revenue growth was compensated by better gross margins.
Tax rates a tad lower.
- Effective tax rate was 16.1% for FY15 due to tax refunds; 4Q15’s effective tax rate was 11.4%, lower than statutory tax rate of 17%.
Cash cycle improved by another 3 days.
- SSG now takes 66 days to pay suppliers while collection and inventory days are stable at 5-6 days and 30-31 days respectively.
Final DPS ahead of expectations.
- Sheng Siong declared a final dividend of 1.75 Scts bringing total DPS to 3.5 Scts for the full year, slightly ahead of expectations.
- Dividend payout ratio amounted to 93%, higher than our 90% assumption.
Added one new outlet in 4Q15, two more this year.
- Sheng Siong opened a new 4,300 sqft store in Queenstown, bringing total number of stores to 39 and floor area to 431,000 sqft.
- Going forward, a store in Yishun Junction 9 with a minimum area of 10,000 sqft, is expected to open in 2Q16.
- Sheng Siong recently won the bid for a new 3,500 sqft store in Circuit Road.
Expect margin expansion to continue albeit at a slower pace.
- We see margins continuing to expand through pace. more bulk discounts and a better mix of fresh and non-fresh products.
- However, due to challenging demand conditions from a slower SSSG environment, we are expecting slower pace of margin expansion.
- We believe some of the lower input costs will have to be passed on to consumers via price discounts to sustain sales volumes.
Maintain BUY, TP S$1.01.
- As 4Q15 results were within expectations, our earnings estimates are unchanged.
- At current levels, Sheng Siong trades at an attractive valuation of 21x forward PE, below regional peer average of 25x.
- With a 90% dividend policy, it offers an attractive FY16F yield of c.4.3%.
- We maintain our BUY call and S$1.01 TP pegged to 25x FY16F PE.
Alfie Yeo
DBS Vickers
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Andy Sim
DBS Vickers
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http://www.dbsvickers.com/
2016-02-24
DBS Vickers
SGX Stock
Analyst Report
1.01
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1.01
