Sheng Siong - RHB Invest 2018-02-19: Expecting Strong 4Q17 Results

Sheng Siong - RHB Invest 2018-02-19: Expecting Strong 4Q17 Results SHENG SIONG GROUP LTD OV8.SI

Sheng Siong - Expecting Strong 4Q17 Results

  • We expect Sheng Siong to deliver strong 4Q17 results, given the uptick in supermarket sales in Singapore, as indicated by the latest retail sales index. Sector wide, supermarket sales grew by 8.3% from September to December. 
  • Although 4Q17 numbers are likely to see the impact of the closure of the Verge and Woodlands stores, we think this would be offset by the reopening of the Loyang store. The rest of the existing stores should still see positive SSSG. 
  • We raise our earnings forecast by 1-2% for FY17-19F and as a result, raise our Target Price to SGD0.99 (from SGD0.98, 9% upside) and maintain NEUTRAL.

Closure of stores to be offset by new stores. 

  • On a y-o-y comparison, we think the absence of a contribution from the Verge store and the closure of the Woodlands store at the end of November would reduce its 4Q17 earnings by approximately 1.4% and 1.5% respectively. This should be offset by the reopening of the Loyang store, which was closed in 4Q16 for renovation. 
  • Given the strong sector-wide growth and opening of three new stores in Dec 2017 (Woodlands, Anchorvale and Edgedale Plains) we expect earnings to come in stronger than our previous forecasts.

Potentially higher dividend payout. 

  • Sheng Siong cut its dividend payout ratio to 70% in 1H17 from its usual 90% ratio. However, we note that there was no major acquisition or asset purchase being announced ever since. 
  • Sheng Siong’s management also clearly state that the reduction in dividend was not due to the opening of its China store. As such, we think there is a possibility that Sheng Siong might raise its dividend payout ratio this quarter if there are no other needs for the company to hold on to cash.

Short-term boost to store sales. 

  • We raise our FY17-19F forecasts by 1-2% and raise our Target Price to SGD0.99 (from SGD0.93) on the back of stronger sales and new store openings. However, looking ahead, we think the y-o-y sales growth of 6-9% in consumer staples is unsustainable, given the low birth rate and high penetration rate of supermarkets in Singapore. 
  • New supermarket sites are located close to existing stores and may eventually see sales cannibalisation when the shift in population to new residential estates slows down. As such, we continue to remain NEUTRAL on the stock.

Juliana Cai CFA RHB Invest | http://www.rhbinvest.com.sg/ 2018-02-19
RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 0.99 Up 0.980