Sheng Siong Group - CIMB Research 2018-04-30: 1Q18 Steady As She-ng Goes; New Stores Underway

Sheng Siong Group - CIMB Research 2018-04-30: 1q18 Steady As She-ng Goes; New Stores Underway SHENG SIONG GROUP LTD OV8.SI

Sheng Siong Group - 1q18 Steady As She-ng Goes; New Stores Underway

  • Sheng Siong Group's 1Q18 net profit of S$18.3m was in line, forming 26%/25.5% of our/consensus FY18F estimates. Seasonally strong quarters are 1Q and 4Q.
  • Net profit rose 9.5% q-o-q and 6.6% y-o-y (vs. 4Q17/1Q17: S$16.7m/S$17.1m) on growth in revenue (+14.0% q-o-q, +5.1% y-o-y), bolstered by operating leverage.
  • Two new stores, already won, are expected to come on board in 2Q18, swifter than our expectations. End-CY18F store count will rise to 50 (vs. 44 at end-FY17).
  • Maintain ADD call but upgrade target price to S$1.18 (+1 s.d. from 3-year average), with FY18-20F EPS lifted on the back of a higher store count and improved GPM.

1Q18 core net profit grows on new stores and operating leverage

  • Comparable same-store-sales growth (SSSG) was 5.6%, excluding losses from the shuttering of Verge in Jun 2017 and Woodlands Block 6A in Nov 17 (-8% SSSG), on improved consumer sentiment and greater store efficiency after large non-performing stores were closed (revenue-per-sq-ft (rev/psf) rose to S$226m). 
  • 4 new stores opened in 1Q18, lifting total stores and retail area to 48 and 436k, respectively (44 and 404k in FY17), and leading to new store growth of 6.7% vs. 6.2% in 1Q17.

Gross profit margin (GPM) rose further y-o-y

  • 1Q18 GP margin was 26.2%, narrower vs. 4Q17’s gross margin of 26.5% as the industry tends to push for volume during the Chinese New Year festive season. This was still higher than 1Q17’s 25.2% as Sheng Siong Group continued to benefit from favourable buying prices and rebates from suppliers given for special promotions and volume discounts.

Two more stores in 2Q18

  • Sheng Siong Group was successful in two new store bids, one at Bukit Batok Block 440 (5,900 sq ft) and one at Yishun Block 675 (5,320 sq ft), and these new stores are guided to be operational in 2Q18. This was swifter than our expectations as we had expected wins to be closer towards the year-end. 
  • Post these stores’ opening, Sheng Siong Group’s store count will rise to 50 (vs. 48 now).

Tender pipeline still robust

  • According to the Housing Development Board (HDB), there are at least c.10 supermarket open bid opportunities (cumulative c.5,900 sf) available in 2018 while, in FY19- 22F, there will be at least another 16, implying ample opportunities still ahead. This does not include closed bid opportunities (direct awards) that are in the market. 
  • Sheng Siong Group’s strategy is to continue expanding its network of outlets in Singapore, especially in areas with no presence, besides nurturing new stores and rejuvenating old ones.

Maintain Add with higher Target Price of S$1.18

  • We lift our FY18-20F EPS on a higher store count for FY18 to 50 (from 48) and a wider FY18F/19F/20F GPM of 26.2%/26.5%/26.5% (from 26%). This results in a higher Target Price of S$1.18, still based on 22.3x FY19F P/E. 
  • We like Sheng Siong Group’s fresh foods and heartland-location focus that helps it defend market share from e-commerce players in the near term. 
  • Catalysts include sizeable new store wins, better SSSG and higher dividend.
  • Downside risks are fewer-than-expected new stores and lower margins.

Cezzane SEE CIMB Research | LIM Siew Khee CIMB Research | http://research.itradecimb.com/ 2018-04-30
SGX Stock Analyst Report ADD Maintain ADD 1.18 Up 1.080