Sheng Siong Group - CGS-CIMB Research 2018-10-31: 3Q18 Slightly Held Back By Admin Costs


Sheng Siong Group - 3Q18: Slightly Held Back By Admin Costs

  • Sheng Siong Group's 3Q18 net profit of S$17.7m missed our S$21.5m forecast on higher administrative costs with the opening of 3 stores during the quarter.
  • However, 3Q/9M GPM was higher y-o-y at 26.5%/26.6%. 9M18 net profit accounted for 72.2%/71% of our/consensus FY18F (S$73.5m/S$75.4m).
  • Maintain ADD with a slightly lower Target Price of S$1.25, based on an unchanged 22.2x P/E (+ 1 s.d. level) as we roll forward to FY20F EPS.

New store sales growth propels 3Q/9M revenue; GPM up y-o-y

  • Sheng Siong Group's revenue in 3Q18 grew 8.0% y-o-y mainly spurred by new store sales growth of 10.6% on the back of the opening of 7 stores YTD; this helped to mitigate the sluggish same-store-sales growth (SSSG) of 0.2% in 3Q18. 3Q18 GPM rose to 26.5% (vs. 3Q17: 26.1%) due to SSG’s mix of fresh versus non-fresh produce, sustained high supplier rebates, and efficiency gains from its distribution centre.
  • Overall, 9M18 revenue grew 6.3% y-o-y with 9M18 GPM rising to 26.6% (vs. 9M17: 26.0%).

Higher admin costs main negative

  • Administrative costs (S$39m/S$114.5m) rose to account for 17.1%/17.1% of 3Q18/9M revenue (vs. 3Q17/9M17:15.9%/16.1%) on costs related to the three new stores opened in 3Q18 and seven YTD.
  • Sheng Siong Group expects this could normalise to below c.17% levels in FY19F, as the revenue from new stores opened in FY18 grows.

Hitting 54 stores by year-end

  • FY18 will be a record year for SSG with ten new store openings. Three more stores are scheduled to open in Oct and Nov 2018, taking year-end store count to 54 and acreage to 495.3k sq ft (FY17:44 stores/404k sq ft).

Maintain Add; SSG remains our preferred supermarket pick

  • We trim our FY88-88F net profit forecast by 8.8%-8.8% largely to account for higher admin costs.
  • But overall, we still like Sheng Siong Group for its fresh food focus, heartland location and healthy balance sheet (as at end-8Q88, it was still in a net cash position of S$88.8m with zero borrowings).
  • We keep our ADD rating with a slightly lower Target Price on unchanged 88.8x (8 s.d. above its historical 8-year mean) as we roll forward to FY88F P/E.

Catalysts and risks

  • Catalysts include more new store openings, better SSSG and higher dividends.
  • Risks are fewer-than-expected new stores and lower margins.

Cezzane SEE CGS-CIMB Research | Colin TAN CGS-CIMB Research | https://research.itradecimb.com/ 2018-10-31
SGX Stock Analyst Report ADD MAINTAIN ADD 1.25 DOWN 1.260