Sheng Siong Group - CGS-CIMB Research 2020-10-30: A Singapore Staple


Sheng Siong Group - A Singapore Staple

  • Sheng Siong's 9M20 net profit (S$106.6m) was above at 86.7%/84.6% of our/street FY20F EPS, led again by healthy same-store-sales growth and higher other income.
  • While earnings will fall in FY21F (on a high base in FY20), we still like Sheng Siong as a defensive play (hence deserving of premium valuations).
  • Reiterate ADD on Sheng Siong with a slightly lower target price as we roll forward to CY22F EPS and lower P/E target of 25x, 2.5 s.d. above average mean (from 26.5x).

Sheng Siong's 3Q20 revenue and net profit still led by ‘homebody’ trend

  • Sheng Siong (SGX:OV8)'s 3Q20 revenue growth of 28.9% y-o-y was led by same-store-sales growth (SSSG) of 19.1% and new store sales of c.9.5%, thanks to continued elevated demand as a majority of Singaporeans were still working from home.
  • GPM was 27% (2Q20: 28.1%), slightly lower q-o-q as sales promotions in the industry returned to pre-COVID-19 levels (2Q20 saw reduced need for sales promotions).
  • Other income was strong at S$5.6m (+89.4% y-o-y) due to COVID-19 grants.
  • Sheng Siong's reported 3Q20 net profit jumped c.54.4% y-o-y to S$31.8m.

9M20 core net profit growth of c.83%

  • Sheng Siong's 9M20 revenue was up by 44.6% y-o-y (on robust SSSG y-o-y growth of 32.8%) while 9M GPM settled at 27.4% (9M19: 26.8%) on robust demand, higher proportion of fresh food mix, higher volume of house brand sales and stable input prices over 9M20.
  • 9M20 other income of S$16.2m was also a bonus.
  • All in, Sheng Siong's 9M20 core net profit soared c.82.6% y-o-y.

Scaling new heights with 64 stores; enough open bids in FY21-22F

  • Sheng Siong ended Sep 20 with 64 stores (575.2k sq ft) after opening three stores (cumulative area of 22.1k sq ft) in 3Q20. The supermarket open bidding process has taken a breather due to COVID-19 but, according to Singapore’s Housing Development Board (HDB), there are 7 supermarket open bids in FY21 and 5 in FY22 (cumulative acreage of 44k and 29k sq ft, respectively), sufficient for our FY21F and FY22F acreage addition assumptions of 25k and 20k sq ft, respectively.

Lift FY20F EPS, trim FY21F EPS

  • We lift Sheng Siong's FY20F EPS by 6.2% on higher revenues and other income. We trim FY21F EPS on slightly lower sales psf as we think same-store-sales growth may gradually fall as the country emerges from the COVID-19 pandemic. This results in our FY21F EPS declining 16.8% y-o-y. We keep our FY22F EPS relatively unchanged.

Reiterate ADD on Sheng Siong; a defensive pick

Cezzane SEE CGS-CIMB Research | https://www.cgs-cimb.com 2020-10-30
SGX Stock Analyst Report ADD MAINTAIN ADD 1.88 DOWN 1.950