Sheng Siong Group - DBS Research 2016-02-24: Within expectations

Sheng Siong Group - DBS Research 2016-02-24: Within expectations 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 | Andy Sim DBS Vickers | http://www.dbsvickers.com/ 2016-02-24
DBS Vickers SGX Stock Analyst Report BUY MAINTAIN BUY 1.01 Same 1.01