SHENG SIONG GROUP LTD
OV8.SI
Sheng Siong Group (SSG SP) - A Decent Start
- 1Q17 earnings in line, driven by new stores.
- Gross margins continue to expand.
- Kunming store to open by end of 3Q17.
- Maintain BUY and S$1.14 TP.
What’s New
Headline net earnings of S$17m (+4.4% y-o-y) was in line with our forecast.
- Revenue of S$217m (+4.1% y-o-y) is a quarterly record high. Revenue growth was largely contributed by four new stores that opened in FY16 (+6.2% y-o-y).
- The 7,200 sqft Loyang Store which opened in February 2017 and flattish same store sale growth (SSSG) were a drag on headline revenue growth.
- Sales per sqft was sustained at c.S$1,900, comparable to 1Q16 and 10% higher sequentially.
- Footfall contracted at Tampines, Woodlands and stores located near the oil and gas industry which led to flat SSSG.
- Gross margins expanded y-o-y to 25% (+0.5 ppt) on higher sales rebates and bulk handling and promotions. This was lower sequentially due to festive promotions.
- Sheng Siong has finally secured possession of the retail space at a shopping mall for its Kunming JV. The store is now on track to open by the end of 3Q17 after renovations.
We are positive on outlook for Sheng Siong.
- Even though there are expected to be store closures at Woodlands and the Verge, new stores including 25,000 sqft Tampines store, 40,000 sqft Kunming store and higher margins should continue to drive earnings growth. We believe gross margins should be able to trend higher than FY16’s 25.7%.
- Maintain BUY and S$1.14 TP based on 25x FY17F PE.
Alfie YEO
DBS Vickers
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Andy SIM CFA
DBS Vickers
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http://www.dbsvickers.com/
2017-05-02
DBS Vickers
SGX Stock
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