Sheng Siong Group - DBS Research 2019-10-31: New Stores Continue To Drive Growth

SHENG SIONG GROUP LTD (SGX:OV8)

Sheng Siong Group - New Stores Continue To Drive Growth

Sheng Siong Group's 3Q19 earnings in line, growth driven by new stores and better margins.
Higher margins a result of better sales mix.
New stores to continue driving growth.
Maintain BUY and S$1.32 Target Price.

SHENG SIONG GROUP (SGX:OV8)'s 3Q19 earnings of S$20.6m (+15% y-o-y) was in line with our forecast, led by 11% y-o-y revenue growth to S$253.8m. Revenue growth was driven by new stores (+10.4% y-o-y) and China (+1.3%), offset by a slight decline in overall same store sales growth (SSSG) of 0.3%. Sales per square feet on an annualised basis dipped by 5% y-o-y to S$1,983. An additional S$1.1m of government grants was received in 3Q19 for subsidies for a project.
Excluding this, 3Q19 results were within our estimates. See Sheng Siong Announcements.

Gross margins improved to 27.1% (+0.6ppt) due to better sales mix i.e. higher fresh food contribution, and lower input costs from suppliers’ rebates. Operating margin improved to 8.8% (+0.5ppt) largely from a lower than proportionate increase in operating costs.

Singapore retail sales for supermarkets has generally been positive this year. Sheng Siong’s growth should continue to be driven by new stores, having opened five new supermarkets this year with one more due to open in 1Q20. China’s contribution remains small as net profit from China was S$0.1m with the new second store yet to breakeven.

We maintain our earnings forecast as results are in line. Our S$1.32 Target Price is pegged to 25x FY20F PE. See Sheng Siong Share Price; Sheng Siong Target Price.
We continue to like the stock for its stable earnings and decent dividend yield. See Sheng Siong Dividend History.
Maintain BUY.

Alfie YEO DBS Group Research | Andy SIM CFA DBS Research | https://www.dbsvickers.com/ 2019-10-31

SGX Stock Analyst Report BUY MAINTAIN BUY 1.320 SAME 1.320