Sheng Siong Group - DBS Research 2016-04-28: Continues growing

Sheng Siong Group - DBS Research 2016-04-28: Continues growing SHENG SIONG GROUP LTD OV8.SI 

Sheng Siong Group - Continues growing 

  • 1Q16 earnings in line with expectations, supported by wage credits 
  • Growth to be driven by new stores 
  • Raise FY17F earnings by 5% 
  • Maintain BUY, with higher TP of S$1.04 


Maintain BUY; margins, store expansion, revenue and earnings growth remain on track. 

  • We continue to like SSG as the company continues to meet growth expectations. SSG is on track towards attaining its 50-store target, while long term margin is expected to track to our expectations. 
  • The company is one of the most well-run grocery retailers in ASEAN, leading regional peers in profitability, cash flow generation and working capital management. 
  • Dividend continues to be attractive at 4.2% based on FY16F DPS of 3.74 Scts. 

1Q16 earnings in line. 

  • While revenue met our numbers, we were slightly aggressive in our gross margin assumptions which meant operating margins disappointed. But earnings were eventually offset by higher-than-expected government grants in the form of wage credits. 
  • SSSG was -0.5% affected by weak Chinese New Year demand, Loyang, Geylang and Woodlands stores. 
  • Higher wage credit has led us to raise our FY17F’s earnings by 5% as a result. 

New stores, margins to support growth. 

  • Sheng Siong is expected to add another four stores in 2Q16 (15,000 sqft at Yishun Junction 9, 3,500 sqft at Circuit Road, 3,000 sqft at Upper Boon Keng, and 3,300 sqft at Sengkang Fernvale). 
  • We expect margin outlook to sustain this year, and improve further in FY17F from more bulk purchasing and fresh sales mix. These, along with government grants, should support growth. 

Valuation: 

  • Our target price for Sheng Siong is S$1.04 based on 25x blended FY16F/FY17F PE. 
  • Valuation is pegged to below +1SD of its historical mean and below regional peers' average of 27x PE. 

Key Risks to Our View: 

  • Store openings, price competition. Revenue growth will be led by new store openings. 
  • Excessive discounts and promotions in the market by competitors will ultimately result in lower margins.



Alfie Yeo DBS Vickers | Andy Sim DBS Vickers | http://www.dbsvickers.com/ 2016-04-28
DBS Vickers SGX Stock Analyst Report BUY MAINTAIN BUY 1.04 Up 1.01


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