Sheng Siong Group - CGS-CIMB Research 2020-02-21: 4Q19 Steady Ship


Sheng Siong Group - 4Q19 Steady Ship

  • FY19 net profit of S$75.7m was in line, at 97.5%/96.5% of our/street’s forecasts (S$77.7m/78.5m). Final 1.8-Sct DPS takes FY19 DPS to 3.55 Scts.
  • As of end-19, number of stores rose to 59 and total floor area rose to 529.5k sq ft (FY18: 54/496k sq ft). Two stores (c.23.5k sq ft) were added in Jan 20.
  • Sheng Siong Group (SGX:OV8) is our top pick for its resilient earnings growth amidst the Covid-19 epidemic. We reiterate our ADD call, with a slightly lower Target Price.

New stores were FY19’s growth driver

  • Sheng Siong Group (SGX:OV8)’s FY19 revenue growth (+11.3% y-o-y) was largely driven by new store sales (+10.2% y-o-y), with five new stores in 2019, mitigating the same-store-sales growth (SSSG) of +0.1% y-o-y (pleasantly lifted by 4Q19’s +1.8% y-o-y growth).
  • FY19 GPM was 26.9% (FY18: 26.8%), driven by higher supplier rebates and better sales mix, but offset by higher pork input prices that SSG was unable to pass on.
  • Reported net profit grew by c.7.0% y-o-y, despite being held back by slightly higher opex and tax expense. If the lease interest under the new SFRS accounting standard were stripped out, net profit would have grown to S$77.4m (+9.4% y-o-y), nearly spot on with our forecast of S$77.7m.

End-19 store count grows to 59, with two more additions in 1Q20F

  • Sheng Siong Group ended FY19 with 59 stores (529.5k sq ft) and added two new stores (with a cumulative floor area of 23.5k sq ft) in Jan 20. Sheng Siong Group is currently bidding for three stores (c.23k sq ft) and expects results by Mar 20.
  • According to Singapore’s Housing Development Board (HDB), there are two more stores up for bid for the rest of FY20F. The two new stores in Jan 20 are close to our forecasted 25k sq ft for FY20F, but given that it is still early days, we maintain our assumptions for now.

Budget 2020 goodies to mitigate any Covid-19 outbreak effects

Reiterate ADD, with slightly lower Target Price of S$1.42

  • We trim Sheng Siong Group’s FY21-22F slightly as we raise our opex and tax expenses, and lift other income due to Budget 2020 goodies. We also introduce FY22F net profit forecasts.
  • We continue to like Sheng Siong Group as a defensive play amidst the Covid-19 epidemic and for its strong balance sheet (net cash of 5 Scts/share). We reiterate our ADD call, with a slightly lower Target Price, based on 24x CY21F P/E (close to 2 s.d. above its long-term mean).
  • Potential re-rating catalysts include new store openings, better SSSG and higher dividends.
  • The reverse, and weak China investment returns, are downside risks.

Cezzane SEE CGS-CIMB Research | https://www.cgs-cimb.com 2020-02-21
SGX Stock Analyst Report ADD MAINTAIN ADD 1.42 DOWN 1.460