Sheng Siong Group - CGS-CIMB Research 2020-07-30: Banking On The “Homebody” Trend


Sheng Siong Group - Banking On The “Homebody” Trend

  • Sheng Siong's 1H20 net profit of S$74.8m was above, at 75.8%/77% of our/street FY20F EPS, led namely by exceptional same store sales growth.
  • We expect 2H to see strong y-o-y growth as long as COVID-19 prevails and Singapore embraces the “homebody” trend.
  • Raise FY20-22F EPS. We think defensive plays will trade at a premium.
  • Reiterate ADD, with a higher Target Price of S$1.95, now on 26.5x CY21F P/E (3 s.d. above average mean).

Sheng Siong's 2Q’s SSSG explodes; higher GPM

  • Sheng Siong Group (SGX:OV8)’s 2Q20 revenue 75.8% y-o-y growth was led by stellar same-store sales growth (SSSG) of 61.2% and new store sales of c.13%, thanks to continued elevated demand during the circuit breaker period.
  • GPM was also at all-time high of 28.1% (2Q19: 27.4%) on heightened sales of fresh food (which typically garner higher GPM) and generally stable input prices.
  • The high revenue and GPM, coupled with other income (which grew 264.1% y-o-y in 2Q, led largely by COVID-19 grants), resulted in reported 2Q20 net profit jumping c.150% y-o-y to S$46.1m, trumping 1Q’s high net profit y-o-y growth of c.46%. 1H20 core net profit soared c.92.8% y-o-y.
  • Sheng Siong also declared a 1H20 interim dividend of 3.5 Scts (70% payout ratio).

Beneficiary of the “homebody” trend. Raise FY20-22F EPS

  • In our consumer survey in May, 47.9% of the Singapore respondents enjoyed their work-from-home (WFH) experience, with 52% of Singapore respondents preferring to keep the WFH option post-circuit breaker and COVID-19; implying that the “homebody” trend could be here to stay, at least in the near term.
  • We think Sheng Siong’s same-stores sales peaked in 1H20 but could stay elevated in 2H20F at least as long as COVID-19 prevails.
  • We raise FY20F EPS by 24.5% as we expect 2H20F net profit to grow 22% y-o-y on stronger same-store sales and three store additions in 2H20F. We also raise our FY21-22F EPS by 11.6% and 13.0%, respectively, as we impute higher sales per store sf and higher operating margins as the company continues its margin enhancement initiatives.

Undertaking something large soon?

  • In 2Q20, Sheng Siong drew down S$30m worth of loans from a S$50m three-year term loan, which was extended from a government agency in support of a national programme, despite being in a net cash position. We believe Sheng Siong could potentially undertake a large project soon. We maintain our capex forecasts until further guidance.

Defensive pick. Reiterate ADD, with a higher Target Price of S$1.95

Cezzane SEE CGS-CIMB Research | https://www.cgs-cimb.com 2020-07-30
SGX Stock Analyst Report ADD MAINTAIN ADD 1.95 UP 1.650