Sheng Siong Group - OCBC Investment 2019-11-01: Good Set Of Results


Sheng Siong Group - Good Set Of Results

  • Sheng Siong Group's 3Q19 PATMI rose 15.3% y-o-y.
  • Continue to expand outlet network.
  • Higher Fair Value estimate of S$1.21.

Growth driven by new stores

  • SHENG SIONG GROUP (SGX:OV8)'s 3Q19 revenue increased by 11.4% y-o-y to S$253.8m, fueled by the contribution of new stores (+10.4% y-o-y) and supermarkets in China (+1.3%), partially offset by a drop in comparable same store sales (-0.35 y-o-y). 3Q19 gross profit grew 14.0% y-o-y to S$68.7m, largely due to higher revenue and higher other income, partially offset by higher operation expenses and net finance expense. See Sheng Siong Announcements.
  • Gross profit margin remained stable at 27.1% (0.6 ppt up y-o-y) on the back of lower input costs and higher sales mix of fresh produce. 3Q19 PATMI rose 15.3% y-o-y to S$20.6m, making up 26.7% of our full-year forecast, which we consider above our expectations due to unexpected higher other income (+61.3% y-o-y) received from government grants.

Total stores number rises from 57 to 59

  • Sheng Siong Group managed to secure 2 shops out of the six HDB shops SSG tendered earlier in 1H19. The two stores which are located at Woodland Street and Tampines Ave 9 respectively, with total square feet of ~17,500 were opened in Oct. On top of these two new stores, one more store at Marsiling Drive is expected to open in 1Q 2020. Together, the total number of stores will be 59 (57 plus 3 new stores and less the closing down of 1 store due to expiry of lease.

Competition remains intense

  • Management noted that the competition for bidding of HDB shops has become more rational. Looking ahead, we believe that supermarket industry will remain challenging while consumer sentiment may soften in view of an uncertain economic outlook.
  • Sheng Siong Group will continue to expand its outlets to areas where it does not have a presence and to improve its gross margins by increasing sales mix of higher margin products such as fresh produce. We believe that new stores will remain the key growth driver of Sheng Siong Group.
  • As at 31 Oct’s close, Sheng Siong Group is trading at its 5-year mean of 20.9x blended forward P/E (Bloomberg consensus). We adjusted our FY19 and FY20 forecast upward by 2%. As such, our fair value increases from S$1.19 to S$1.21. See Sheng Siong Share Price; Sheng Siong Target Price.

Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2019-11-01
SGX Stock Analyst Report HOLD DOWNGRADE BUY 1.21 UP 1.190