Sheng Siong Group - OCBC Research 2016-02-25: New stores remain as crucial drivers

Sheng Siong Group - OCBC Research 2016-02-25: New stores remain as crucial drivers SHENG SIONG GROUP LTD OV8.SI 

Sheng Siong Group: New stores remain as crucial drivers 

 FY15 PATMI up 19.3% YoY 
 At least two new stores this year 
 Focused on improving efficiency 

FY15 results within expectations 

  • Sheng Siong Group’s (SSG) FY15 revenue increased 5.3% to ~S$764.4m, meeting 99% of our FY15 estimate. 
  • Net profit also grew 19.3% to S$56.8m, making up 103% of our full-year forecast. 
  • Our estimate had also incorporated ‘other income’ of ~S$9m. 
  • The group’s new stores contributed 4.6% to its revenue growth, while 0.7% came from old stores. 
  • SSG managed to improve its gross profit margin (GPM) to 24.7% from 24.2%, and besides certain one-off factors in FY15, we think GPM should be able to sustain around 24% as they remain focused on improving operational efficiency at its warehouse as well as stores. 

Store developments ahead 

  • FY16 will continue to be supported by new stores, with a new store in Yishun Junction 9 (minimum area of 10k sq ft) and one in Circuit Road (3.5k sq ft). But this will be partially offset by closure of Loyang store (6k sq ft) in 2Q16 and Tampines store (9.8k sq ft) in 4Q16, as well as potential drag from old stores (4Q: -1.7% YoY). 
  • In 2017, the Loyang store and Tampines store will reopen with 8k sq ft and 25k sq ft in 1Q respectively, and both would likely enjoy the higher new stores growth rate. 
  • In view of the closure of the 41k sq ft Woodlands store by 2Q17, the new stores should reduce this pressure, but we incorporate a smaller growth rate for now. 
  • We also remain cognizant of some downside risks coming from the potential sale of properties where Jurong Superbowl Supermarket (16k sq ft) and The Verge Supermarket (45k sq ft) are located. 

Higher DPS declared; FV unchanged 

  • Besides new stores as the key growth driver, the group can carry out major-refitting on some of the mature stores, as renovated stores have been able to enjoy better growth, notwithstanding the downtime period of about one month. Thus we believe core business growth remains intact for FY16. 
  • The group’s balance sheet remained healthy with net cash of S$126m. Maintain BUY, with unchanged DCF-derived FV of S$0.95. 
  • A higher final DPS of 1.75 S-cents was declared, bringing total DPS to 3.5 S-cents vs. 3.0 S-cents last year.

Jodie Foo OCBC Securities | http://www.ocbcresearch.com/ 2016-02-25
OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 0.95 Same 0.95