Sheng Siong Group - OCBC Investment 2018-02-26: New Stores To Drive Growth In FY18

Sheng Siong Group - OCBC Investment 2018-02-26: New Stores To Drive Growth In FY18 SHENG SIONG GROUP LTD OV8.SI

Sheng Siong Group - New Stores To Drive Growth In FY18

  • FY17 within expectations.
  • Limited operations at China store.
  • Total FY17 dividend of 3.3 S-cents.

Higher revenue and better margin in FY17 

  • Sheng Siong Group’s (SSG) FY17 revenue grew 4.2% y-o-y to S$829.9m, of which 4.5% was contributed by new stores, 2.1% by comparable same store sales (SSS), but was offset by a 2.4% reduction arising from temporary closure of Loyang Point store, as well as permanent closure of The Verge and Woodlands Block 6A stores. Gross profit improved 6.2% to S$217.4m on better gross margin due to stable selling prices but with lower input costs on better buying prices, higher rebates and volume discounts from suppliers. 
  • Consequently, excluding tax refunds of S$2.2m recorded in 3Q17, SSG’s FY17 core PATMI were within our expectations as it rose 7.9% to S$67.6m, and formed 102% of our full year estimate. 
  • The new store in Kunming, China commenced operation in Nov 17 in a limited manner as a number of the shops in the new shopping mall where the supermarket is situated have yet to open for business.

Expects margins to remain stable 

  • Looking into FY18, we expect revenue to be higher y-o-y with the following drivers:
    1. 5% - 8% growth from seven new stores contributing in FY18 with six already opened and the seventh scheduled to open in Apr 18, and
    2. 2% - 3% growth from SSS on the back of improved consumers’ sentiment. 
  • However, we also expect this growth to be partly offset by the 5% drag arising from the permanent closure of the two stores in FY17. Do note that the seven stores do not include any other potential addition in new stores won during FY18. 
  • Furthermore, we also expect gross margin to remain stable on mostly stable selling prices with continued rebates and discounts from suppliers. Operating expenses are also expected to remain stable given the structure of wages, which has a higher weight on variable bonus rather than high salary.

Reiterate BUY 

  • On in-line FY17 results, and rolling-forward our valuations, we increase our Fair Value from S$1.04 to S$1.06 and continue to like Sheng Siong Group for its stability and strong consistent record in operating cash flow generation.

Eugune ChuA OCBC Investment | http://www.iocbc.com/ 2018-02-26
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 1.06 Up 1.040