SHENG SIONG GROUP LTD
OV8.SI
Sheng Siong - Defensive Business To Hold Up Well
- Despite SSSG taking a slight turn for the worse in 4Q15, we believe the defensive nature of Sheng Siong’s sales are likely to hold up well in 2016 against a backdrop of weak spending in Singapore.
- This environment may provide the catalyst for its next leg of growth as the firm is well placed to secure favourable long-term rental locations/ rates.
- FY15 dividend payouts totalled 3.5 cents/share (FY14: 3 cents/share), which is comfortably sustainable going forward.
- Maintain BUY with a DCF-based SGD1.00 TP (from SGD1.05, 15% upside).
Profit growth to come from further margins expansion in 2016.
- We expect demand conditions to remain tepid in 2016, lending to weak same-store sales growth (SSSG). However, Sheng Siong’s profitability is likely to be driven by further improvements in operating margins.
- The opening and subsequent expansion of self-owned stores in Tampines and Yishun this year may also provide upside to earnings.
SSSG hit negative in 4Q15.
- Sheng Siong’s SSSG declined by 1.7% in 4Q15 due to tepid demand. We expect management to rejuvenate its older stores progressively over the next few years to improve sales momentum.
- We believe sales would remain relatively stable due to defensive nature of its business.
Further room to improve margins.
- We believe further room to improve margins is likely to come from:
- continued strength of the SGD vs the MYR (where the group sources its food),
- increased bulk handling, and
- the rollout of self-checkout machines to alleviate manpower cost pressures.
Reiterate BUY.
- We trim FY16F-17F earnings by 4-8%, to account for more muted demand within older stores.
- We reiterate BUY on this stock with a DCF-derived SGD1.00 TP (previously SGD1.05), implying 25x FY16F.
James Koh
RHB Invest
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http://www.rhbinvest.com.sg/
2016-02-24
RHB Invest
SGX Stock
Analyst Report
1.00
Down
1.05
