Sheng Siong Group (SSG SP) - DBS Research 2018-02-23: New Outlets To Drive Growth

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SHENG SIONG GROUP LTD OV8.SI

Sheng Siong Group (SSG SP) - New Outlets To Drive Growth

• Sheng Siong Group's FY17F earrings in line, driven by better gross margins and sales efficiencies.
• Final dividend of 1.75 Scts declared.
• Growth to be driven by new outlets, 9 new stores and selling area added between 1Q17 to 1Q18.
• Maintain BUY, Target Price S$1.20 based on 25x FY18F PE.

What’s New 

FY17 in line. 

• Sheng Siong's revenue and earnings of S$S$830m (+4.2% yo-y) and S$69.5m (+10.9% y-o-y) for FY17 were in line with our forecast. Revenue growth was driven by new stores and improved efficiency based on sales per square feet, offset by closure of the Verge and Woodlands stores. Same store sales growth (SSSG) grew by 2.1%. 
• Gross margin was 26.2% (+0.5ppt) on lower cost of goods from better pricing, supplier rebates and volume discounts. EBIT as a result was 10% y-o-y higher at S$71.5m. 
• Opex grew in line with revenue.

More outlets to drive growth going forward. 

• Sheng Siong cranked up a > 10% core earnings growth in FY17 which we believe is remarkable despite
  1. the closure of two 40,000 sqft stores at Woodlands and the Verge; and
  2. the entry of Amazon Prime in Singapore. 
• While floor area has reduced by 46,000 sqft (-10%) in FY17, better sales efficiencies and margins made up for the loss of selling area. It added 8 new stores and expanded selling area in another store in 2017 and will add more than 30,000 sqft of space in 1Q18 at Canberra, Anchorvale, Fernvale, and ITE Ang Mo Kio.
• Pipeline for planned HDB supermarkets in the next 6 months remains robust with 11 supermarket locations already earmarked for tender. 
• Sheng Siong’s China store in Kunming also finally opened in November 2017.

Contribution is expected to be minimal for now.

Maintain BUY, Target Price S$1.20 based on 25x FY18F PE. 

• There is no significant change to our earnings projections since FY17 and 4Q17 earnings were in line with our expectations. 
• Our Target Price based on 25x FY18F PE is now S$1.20.

Alfie YEO DBS Vickers | Andy SIM CFA DBS Vickers | http://www.dbsvickers.com/ 2018-02-23

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.20 Up 1.190