Sheng Siong Group - CGS-CIMB Research 2019-02-26: 4Q18 Results ~ Growth On New Stores


Sheng Siong Group - 4Q18 Results: Growth On New Stores

  • SHENG SIONG GROUP LTD (SGX:OV8) 4Q18’s net profit of S$17.6m took FY18’s net profit to S$70.8m, in-line at 101.4%/99% of our/consensus’ full year forecasts (S$69.8m/S$70.8m).
  • FY18 DPS of 3.4Scts was announced. End-18 store count stood at 54 vs. 44 at end-FY17. Store acreage increased to 496.2ksq ft (vs. 404ksq ft in FY17).
  • We cut our FY19-20F EPS, but maintain ADD with a slightly lower Target Price of S$1.22, based on an unchanged 22.2x P/E (+ 1 s.d. level) on FY20F EPS.

New store sales growth propels 12M18 revenue

  • Sheng Siong Group’s 12M18 revenue grew 7.4%, with new store sales growth being the largest bump-up factor at 10.1%. Comparable same-stores sales was +1.7% y-o-y; whilst the loss of Verge and Woodlands Block 6A reduced revenue by 2.4% y-o-y.

Gross profit margin (GPM) steadily up y-o-y; only held back by SG&A

  • Sheng Siong Group’s 12M18 GPM rose to 26.8% (vs. 12M17: 26.2%) as Sheng Siong Groupcontinued to reap the benefits of
    1. its product mix (higher fresh vs. non-fresh produce),
    2. sustained high supplier rebates, and
    3. efficiency gains from its distribution centre.
  • Sheng Siong Group’s 12M18 operating margins settled at 9.4% (vs. FY17: 9.9%) subdued by higher administrative expenses on account of the higher number of new stores (record ten new store openings in FY18).

Singapore revenue growth on new stores; China at early stages

  • Sheng Siong Group guided that since the beginning of 2019, of the 6 HDB shops that were previously won by competitors via online bidding in FY17-18, 3 have yet to be re-tendered. Besides that, HDB slates 9 more scheduled bids in FY19F (5 in the next 6 months). This bodes well for new store pipeline.
  • Beyond that, FY19F revenue would see the impact of the 10 stores that came onstream in FY18. This could counterweigh the potentially weak same-stores sales rate in FY19F (on account of slower macro growth).
  • A second China store lease was signed and could be operational in 3Q19F. Compared to Sheng Siong Group’s Singapore operations, China remains in the early stages.

Maintain ADD, preferred supermarket pick

  • We cut our FY19-20F net profit forecasts marginally on lower revenue per square feet in light of the uninspiring retail index growth and slightly higher SG&A costs in FY19F. But we still like Sheng Siong Group for its defensive stance in the supermarket space, strong GPMs and healthy balance sheet (end-4Q18 net cash position of S$87.2m with zero borrowings).
  • We keep our ADD rating with a slightly lower Target Price on unchanged 22.2x (1 s.d. above its historical 4-year mean) on FY20F P/E.

Catalysts and risks

  • Catalysts include more new store openings, better SSSG and higher dividends.
  • Downside risks are fewer-than-expected new stores, lower margins and its Chinese tments not bearing fruit.

LIM Siew Khee CGS-CIMB Research | https://research.itradecimb.com/ 2019-02-26
SGX Stock Analyst Report ADD MAINTAIN ADD 1.22 DOWN 1.250