Sheng Siong Group - OCBC Investment 2016-04-29: Four stores likely to open in 2Q16

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SHENG SIONG GROUP LTD OV8.SI 

Sheng Siong Group: Four stores likely to open in 2Q16 

• 1Q16 PATMI up 17% YoY 
• New stores to drive growth 
• Signed lease for first store in China 

1Q16 results in-line 

• Sheng Siong Group’s (SSG) 1Q16 revenue increased 5.1% YoY to S$208.5m and net profit grew 16.8% to S$16.4m, meeting 26% and 31% of our full year estimates. 
• As the group recorded a relatively higher amount of government grants at S$2.3m this quarter, stripping out ‘other income’, results remain well within expectations. 
• Revenue was driven by new store growth of 5.6%, but saw a slight 0.5% contraction in comparable same store sales growth due to slower Chinese New Year sales and other previously cited factors. 
• We believe the gross profit margin should also continue to be stable for the year. 

2Q16 to see four new stores 

• A 3.5k sq ft store in Circuit Road opened on 17 Apr, and a 3k sq ft store in Upper Boon Keng Road will be opened on 28 Apr. 
• A 3.3k sq ft store is also expected to open at Fernvale Street in Seng Kang. 
• With regards to the store in Yishun Junction 9 (currently 15k sq ft approved), SSG is awaiting approval to use the remaining 4k sq ft, while the store is likely to open in Jun. 
• Management continues to be on the lookout for new stores. 

Steady growth expected for FY16 

• We expect steady growth for FY16, driven by full year contribution from six stores (opened during 2015-2016) as well as the four new stores mentioned above for 2Q onwards. This is also in consideration of a flattish growth anticipated for comparable same stores as well as temporary closures for Loyang Point (6k sq ft store in 2Q) and Tampines (9.8k sq ft store in 4Q). The latter two stores would re-open in 1Q17 with 8k sq ft and 25k sq ft. 
• We revise our estimates for FY16 to take into account a higher ‘other income’ component, while our assumptions also account for the S$53m payment for the property at Upper Changi Road. 
• While SSG has signed a lease for their first store (~54k sq ft) in Kunming, China, slated to open in 4Q16 at a new shopping complex situated in a residential area, the investment risk is currently limited to US$6m. 
• Maintain BUY, with an unchanged fair value of S$0.95. 

Jodie Foo OCBC Securities | http://www.ocbcresearch.com/ 2016-04-28

OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 0.95 Same 0.95