Sheng Siong Group - DBS Research 2020-04-29: COVID-19 Demand Comes Through

SHENG SIONG GROUP LTD (SGX:OV8) | SGinvestors.io SHENG SIONG GROUP LTD (SGX:OV8)

Sheng Siong Group - COVID-19 Demand Comes Through

  • Sheng Siong's strong 1Q20 performance boosted by COVID-19 demand.
  • Exceptionally strong SSSG at +19.7% for the quarter.
  • Raised FY20F earnings by a marginal 1% on slightly stronger revenue projections.



Strong performance due to COVID-19:

  • Sheng Siong (SGX:OV8) turned in an exceptionally strong quarter for 1Q20 with revenue growing 30.7% y-o-y and earnings by 53.9% to S$329m and S$29.8m respectively. Sales was boosted by both new stores and SSSG which grew by +9% y-o-y and +19.7% respectively. See Sheng Siong Announcements.
  • While revenue was stronger than expected, gross margins of 27% was in line with expectations.
  • Operating expenses enjoyed some operating leverage with EBIT margins increasing by 1.3ppts to 9.6%, before recognising COVID-19 government grants. Grants amounted to c.S$1.6m, largely support packages for COVID-19.




Shift in food consumption from F&B Foodservice to supermarkets in play:

  • We had earlier anticipated a shift in food spending from F&B Foodservice into supermarkets and the strong results posted by Sheng Siong is a validation that of our investment thesis and stock call.
  • In fact, revenue and earnings growth outpaced our expectations slightly and to account for the minor outperformance, we have raised our revenue for FY20F. This results in a marginal increase in earnings.
  • Among the changes to our forecast assumptions, we have raised our SSSG for the year to 10% (from 8%), which is still way below the +19.7% recorded for 1Q20. We expect 2Q20’s SSSG will still be exceptionally high due to the circuit breaker period effective 7 April and extended to 1 June, and enhanced measures. This should see a further shift in consumption to supermarkets triggered by closure of standalone snack, dessert, and confectionery stores.


Maintain BUY, with slightly higher Target Price of S$1.58.






Alfie YEO DBS Group Research | Andy SIM CFA DBS Research | https://www.dbsvickers.com/ 2020-04-29
SGX Stock Analyst Report BUY MAINTAIN BUY 1.58 UP 1.560



Advertisement



MOST TALKED ABOUT STOCKS / REITS OF THE WEEK



loading.......



ANALYSTS SAY


loading.......