Sheng Siong Group - UOB Kay Hian 2018-07-31: 2Q18 Results In Line, Higher Dividends Declared

Sheng Siong Group - UOB Kay Hian Research 2018-07-31: 2q18 Results In Line, Higher Dividends Declared SHENG SIONG GROUP LTD SGX:OV8

Sheng Siong Group - 2Q18 Results In Line, Higher Dividends Declared

  • 2Q18 results were in line with our expectations, representing 23.6% of our full-year estimates. Net profit grew 6.4% y-o-y, driven by contributions from new stores and stronger SSS growth. The improvement in performance prompted management to propose higher dividends of 1.65 S cents per share.
  • Going forward, Sheng Siong’s earnings growth will likely come from new store sales as well as SSS growth.
  • Maintain HOLD and PE-based target price of S$1.09. Entry price: S$0.98.



WHAT’S NEW


2Q18 results in line.

  • Sheng Siong Group’s (SSG) results were in line with our estimates. 
  • Revenue rose 5.7% y-o-y, mainly attributed to new store openings and an improvement in same-store sales (SSS) growth to 4.2% in 2Q18 (2Q17: 0.9%). Excluding retail space expansion in Block 506 Tampines in 2Q17, comparable SSS growth would have been 2.3%. 2Q18 gross margin rose to 27.3% (2Q17: 26.8%) due to better sales mix and suppliers’ rebates. 
  • Sequentially, gross margin rose from 26.2% in 1Q18 as the group pushed for more volumes during the Chinese New Year season.


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Higher dividends proposed on the back of improved performance.

  • As at end-2Q18, the group had a total retail area of 436,000sf, up 2.1% y-o-y, due to the addition of new stores. While revenue had remained relatively stable at S$600psf in 2Q18 from S$598psf in 2Q17, gross profit had expanded 8.7% y-o-y. 
  • On the back of this strong performance, Sheng Siong Group has raised its dividend for 2Q18 to 1.65 S cents/share from 1.55 S cents/share for 2Q17.


STOCK IMPACT


Eight new HDB supermarket units up for tender within the next six months.

  • On the supply side, our online channel checks at hbiz.com indicate a healthy supply of eight new supermarket outlets that will be put up for bidding over the next six months. This does not include any tenders through the closed bidding channel. Assuming a conservative win rate of 15%, we expect Sheng Siong Group to win one new shop for 2018, which will bring total supermarket wins for the year to seven.


EARNINGS REVISION/RISK

  • Risks include:
    1. price war between Amazon and RedMart which might trigger associated price reductions in brick-and-mortar players, and
    2. return of irrational bidding for supermarket units resulting in fewer new store wins.


VALUATION/RECOMMENDATION

  • Maintain HOLD with unchanged PE-based target price of S$1.09, pegged to peers’ 2018F PE of 22.5x. 
  • Sheng Siong Group’s share price has risen by another 5.9% since late-April and has come within 0.1% of our target price. On a valuation basis, we will look for a favourable entry price at S$0.98.


SHARE PRICE CATALYST

  • Pick up in SSS growth.
  • Higher-than-expected new store openings.
  • China expansion surprising on the upside.





Yeo Hai Wei UOB Kay Hian Research | Andrew Chow CFA UOB Kay Hian | https://research.uobkayhian.com/ 2018-07-31
SGX Stock Analyst Report HOLD Maintain HOLD 1.090 Same 1.090



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