Sheng Siong Group - Maybank Kim Eng 2018-05-01: Positive Prospects & NDR Highlights

Sheng Siong Group - Maybank Kim Eng 2018-05-01: Positive Prospects And Ndr Highlights SHENG SIONG GROUP LTD SGX: OV8

Sheng Siong Group - Positive Prospects & NDR Highlights


Robust sales growth and good expansion pipeline

  • Sheng Siong Group's 1Q18 results were in line, earnings met 25% of ours and consensus FY18E. Revenue and earnings grew 5.1% and 6.6% y-o-y, respectively driven by robust new store sales growth and comparable store sales growth. 
  • Key highlights in our post-results NDR:
    1. ample new stores opened since 4Q17 and healthy consumer sentiment are expected to drive growth;
    2. fresh products remain a key differentiator to defend against online threats and competitors;
    3. good expansion pipeline as more new stores are up for tender; and
    4. further penetration into new market segments and China. 
  • Maintain BUY and DCF Target Price of SGD1.20 (7.7% WACC, 1.5% LTG).



Impressive new and comparable store sales growth

  • The new store sales growth of 6.7% came from 7 new stores, where 6 of them only started since 4Q17, and there should be ample room for them to grow further before reaching a steady state. SSG operates 48 stores as of 1Q18. 
  • On the other hand, the comparable store sales growth reached a new record 5.6%, attributable to:
    1. the recovery in consumer sentiment started in 2H17; and
    2. re-opening and expansion of stores, as well as spill-over of customers to nearby stores after the closure of two major stores.
  • In addition, gross margin increased 1.2ppt y-o-y due to a higher sales mix of fresh products and supplier rebates. These positive forces are expected to sustain in 2018.


New stores and healthy pipeline to sustain growth

  • We expect future earnings growth to remain healthy from:
    1. ramping up of 7 new stores opened since 4Q17 and 2 more new stores targeted to open in 2Q18;
    2. healthy comparable store sales growth from good consumer sentiment; and
    3. ample expansion pipeline, where around 10 new supermarket sites are up for tender, much higher compared to the past two years.
  • In addition, we see upside from margin expansion as SSG increases its sales mix of fresh products, more automation, and completion of its central warehouse expansion, targeted in end-2018. 
  • Beyond that, management is seeking to penetrate into new market segments by engaging with the millennial in new housing estates and targets to expand further via 2-3 new stores in Kunming, China, over the next 1-2 years.


Swing Factors 


Upside 

  • Stronger-than-expected revenue growth on the back of strong GDP, wage and employment growth. 
  • Better-than-expected food-cost savings or lower labour costs following automation. 
  • Wins more-than-expected tenders for public-housing sites for new supermarkets. 

Downside 

  • China supermarket does not take off. 
  • Unable to pass on higher food costs due to competition. 
  • Manpower shortages affecting Singapore operations. Due to high mix of fresh food, it may need more workers per store than its competitors. 





John Cheong CFA Maybank Kim Eng | https://www.maybank-ke.com.sg/ 2018-05-01
SGX Stock Analyst Report BUY Maintain BUY 1.200 Same 1.200



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