SHENG SIONG GROUP LTD (SGX:OV8)
Sheng Siong Group - Star Performer Amid The COVID-19 Gloom
- Sheng Siong's 1Q20 net profit (S$28.7m) was a record-high; and above at 33.7%/33.3% of our/street forecasts (S$85.1m/S$86.7m) buoyed by stellar same-store-sales.
- We see Sheng Siong’s 2Q as equally robust on the Apr to end-May lockdowns. 64 stores as at end-20F support forward earnings. We lift our FY20-22F EPS.
- While COVID-19 benefits may ease by end-20F, we still like SSG for its ability to continue to grow its market share in Singapore. We reiterate our ADD call.
Same-store-sales growth (SSSG) the star in 1Q; stable GPM
- Sheng Siong (SGX:OV8) recorded a 1Q20 revenue growth of 30.7% y-o-y on a stellar SSSG of 19.7% and new store sales of 9% thanks to better Chinese New Year sales (vs. a low base in 1Q19) and elevated demand during the various lockdowns seen in Singapore from the DORSCON Orange period till Mar.
- GPM was intact at 27% (FY19: 26.9%) on heightened house-brand sales (that typically command a higher gross margin) and slightly lower input prices for various categories of offerings.
- Higher revenue, higher gross profit margins, coupled with other income that grew 57% y-o-y (led largely by COVID-19 grants) resulted in reported 1Q20 net profit jumping 46% y-o-y to S$28.7m, making this an all-time high quarter.
Still taking market share; end-20F store count set to grow to 64
- We were pleasantly surprised to hear that Sheng Siong had secured three more stores (cumulative area of 22.1k square feet), as we had thought all tenders had been suspended for the time being. These are targeted for opening post the circuit-breaker period, hence could take place sometime in 2H20F, in our view. These take FY20F new store openings to five (c.+45k sq ft acreage) and end-FY20F store count to 64 (c.575k sq ft acreage).
An extraordinary year
- We believe Sheng Siong’s 2Q20F could be equally robust as the lockdowns from Apr to end-May have resulted in a near-term dine-at-home culture; while government grants could also pick up as the job support schemes kick-in. 2H could see some easing revenue growth trends, but the additional three new stores (above our forecasted new store additions of 25k sq ft for FY20F) could underpin forward growth, in our view.
- Given the robust SSSG, higher other income and new store wins in FY20F we raise Sheng Siong’s FY20-22F EPS by 8- 16%. We expect an FY20F EPS growth of c.30%.
Reiterate ADD with a higher Target Price of S$1.65
- We raise our Target Price to S$1.65 on our higher forecasts and based on a higher CY21F P/E of 25x (from 24x; slightly above the 2 s.d. above its long-term mean), as we believe Sheng Siong should trade at a premium to its historical mean due to its defensive qualities, stellar balance sheet (net cash of c.7.5 Scts/share in 1Q20) and its ability to grow market share in Singapore – which is a longer-term benefit.
- See Sheng Siong Share Price; Sheng Siong Target Price; Sheng Siong Analyst Reports; Sheng Siong Dividend History; Sheng Siong Announcements; Sheng Siong Latest News.
- Potential re-rating catalysts include new store openings, better SSSG and higher dividends. The reverse pose as downside risks
Cezzane SEE
CGS-CIMB Research
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https://www.cgs-cimb.com
2020-04-29
SGX Stock
Analyst Report
1.65
UP
1.420
