SHENG SIONG GROUP LTD
OV8.SI
Sheng Siong - Further Margin Improvements
- Operating margin improvements this quarter validate our belief that there is further room to grow in this aspect; Sheng Siong’s balance sheet remains strong even after exercising its options recently to purchase existing premises at Bedok for SGD53m.
- We expect a moderate increase in retail area for 2016, with the opening of four outlets in 2Q16, despite some store closures for renovation.
- Maintain BUY.
Same-store sales growth (SSSG) decline moderated QoQ.
- Sheng Siong posted a strong set of 1Q16 results. SSSG was -0.5%, which is a sequential improvement from the surprising -1.7% in 4Q15.
- The negative SSSG is a combination of weaker spending as well as several store-specific reasons. However, we believe this improvement is a positive signal that consumption spending at Sheng Siong remains defensive in nature.
Gross margins were maintained at 24.5% vs 1Q15.
- This is in line with our expectations of a marginal improvement in 2016.
- First quarter margins are seasonally lower, due to more bulk purchases during the Chinese New Year festive season.
Operating margins continue to improve.
- Operating margins improved 80bps to 9.3% in 1Q16, reflecting continued cost control excellence.
- This was also partly due to higher other income, reflecting government grants to offset labour cost pressures.
Maintain BUY.
- We keep our estimates unchanged, and maintain BUY, with a DCF-derived TP of SGD1.00.
- The risk to our call is the inability to find new store locations going forward, which is likely to reduce growth potential.
James Koh
RHB Invest
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http://www.rhbinvest.com.sg/
2016-04-28
RHB Invest
SGX Stock
Analyst Report
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