Sheng Siong Group - OCBC Investment 2020-02-24: A Good Year

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SHENG SIONG GROUP LTD (SGX:OV8)

Sheng Siong Group - A Good Year

• New stores remained the key growth driver.
• Total store count is 63 as of Feb 2020.
• Higher Fair Value estimate of S$1.45.

FY19 PATMI rose 7.4% y-o-y

• 4Q19 revenue for Sheng Siong Group (SGX:OV8) rose 11.8% y-o-y to S$247.9m, and this continued to be driven by new stores (+8.6% y-o-y) while the contribution from comparable same store sales and China increased 1.8% and 1.4% y-o-y, respectively.
• Gross profit grew 11.8% y-o-y to S$67.4m, largely on the back of higher revenue. Gross profit margin remained stable at 27.2% (0.1 ppt up y-o-y), largely due to higher suppliers’ rebates and higher sales mix of fresh produce.
• All-in, 4Q19 PATMI was down 0.8% y-o-y to S$17.4m, dragged by higher operating expenses (+14.4% y-o-y) while FY19 PATMI rose 7.4% to S$75.8m. As such, 4Q19/19 made up 22%/96% of our full-year forecast, which we consider to be slightly below our expectations due to higher than expected expenses.
• A final dividend of 1.80 S cents per share was declared, taking total dividend for FY19 to 3.55 S cents per share.

Total stores number rose from 56 to 61 in FY19

• Five new stores were opened in Singapore in FY19, bringing the total number of stores to 61 (59 stores in Singapore and two stores in China). Together, with the additional two stores which opened in Jan 2020, Sheng Siong Group’s total number of stores in Singapore stands at 61 now.
• Looking ahead, expansion of outlets to areas with no Sheng Siong Group presence and away from competitors remains SSG’s key strategy.

Beneficiary of Singapore Budget 2020

• Management shared that they have not experienced any major disruptions in their supply chain, due to the diversification of their suppliers, with the exception of personal care products such as sanitisers and antiseptic products. Sheng Siong Group will increase the level of inventory amid the uncertainties from COVID-19.
• Sales volume has returned to normal after the panic buying in early Feb. However, sales volume is likely to pick up in 1H20 with more people choosing to eat at home and avoid outdoor events and gatherings.
• During the Singapore Budget 2020, the government announced a relief package to help businesses tide over this difficult period, we believe that Sheng Siong Group is likely to benefit from the
  1. Job Support Scheme;
  2. Wage Credit Scheme;
  3. a 25% rebate on corporate income tax (up to S$15,000), and
  4. rental waivers from HDB for half-month.
• We estimate that Sheng Siong Group could potentially receive ~S$1.8m grants from the relief package. Moreover, Sheng Siong Group could benefit from higher purchasing power under the Care & Support package for households, for example, grocery vouchers, cash payouts, etc.
• After adjustments and decreasing our risk-free rate to 2.0%, our fair value increases from S$1.21 to S$1.45.
• See Sheng Siong Share Price; Sheng Siong Target Price; Sheng Siong Analyst Reports; Sheng Siong Dividend History; Sheng Siong Announcements; Sheng Siong Latest News.

Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2020-02-24

SGX Stock Analyst Report BUY UPGRADE HOLD 1.45 UP 1.210