SHENG SIONG GROUP LTD (SGX:OV8)
Sheng Siong Group - Still Grabbing Market Share
- SHENG SIONG GROUP LTD (SGX:OV8)'s 1Q19 revenue was above our expectations. PATMI was below estimates as operating expenses were moderately higher than expected.
- Gross margin was relatively flat compared to a year ago.
- Secured three new stores this year, a 3% boost in total store footprint.
- We have kept our forecast unchanged. Upgrade to BUY from ACCUMULATE with unchanged target price of S$1.30. Continued store expansion and market share gains are the twin drivers of growth.
The Positive
Sales growth was healthy.
- SHENG SIONG GROUP LTD (SGX:OV8)'s 1Q19 sales growth of 10.1% y-o-y was above our modelled 7%. Growth was supported purely by the new stores as same-store sales contracted 1% y-o-y.
Three new stores secured.
- In May 2019, Sheng Siong secured 3 new stores (or 15,780 sft). This will boost total store footprint by 3%. These three stores are close-bid stores retendered from existing sites that were given up. Another six new stores have recently been tendered out by HDB. These stores may include non-price factors as part of the requirements.
The Negative
Same-store sales a worry.
- As per the previous quarter, same-store sales is the weak spot. It contracted 1% during the quarter. This is comparable to the almost 2% same-store sales decline recorded by supermarkets located within retail malls*. (*Using data from CapitaLand Mall Trust 1Q19 presentation as a proxy.)
Operating expenses trended higher.
- Sheng Siong's 1Q19 operating expenses was 17.7% of sales, marginally higher than our modelled 17.5%. New stores will require time to scale up. According to the company, gross margins were a tad lower due to the timing of rebates. Contribution of fresh products to the sales mix was in fact higher y-o-y in 1Q19.
Outlook
- In spite of the weak consumer sentiment, Sheng Siong has been raising their market share of supermarket sales. Supermarket sales in Singapore contracted almost 2% year-to-date, as at end-Feb 2019. Sheng Siong would have captured market share with their 10% jump in sales.
- We are still positive on the outlook. The almost 11% growth in retail space for 2019 will help support growth. Another growth driver will be the higher sales per square feet.
Upgrade to BUY with unchanged Target Price of S$1.30.
- Our Target Price is based on an estimated 25x PE multiple.
- Sheng Siong is expanding its store count, increasing market share and currently offers a 25% ROE with a S$87mn net cash balance sheet.
Paul Chew
Phillip Securities Research
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https://www.stocksbnb.com/
2019-05-02
SGX Stock
Analyst Report
1.300
SAME
1.300
