Sheng Siong Group - CGS-CIMB Research 2021-02-25: FY20 A Windfall Year. Still A Staple Pick


Sheng Siong Group - FY20 A Windfall Year. Still A Staple Pick

  • Sheng Siong's FY20 net profit of S$138.7m was ~6% above our/Bloomberg consensus forecasts (S$130.5m/S$130.3m), led by lower opex and higher other income.
  • While we have penciled in an earnings shrinkage in FY21F (given the high base in FY20), we still like Sheng Siong as a defensive play.
  • Reiterate ADD, with target price of S$1.88 as we think it still deserves premium valuations.

Homebody trend and grants led FY20 net profit growth

  • Sheng Siong (SGX:OV8)'s 4Q20 revenue expanded 28.8% y-o-y, led by same-store-sales growth (SSSG) of 18.2% and new store sales growth of ~10.6 %, thanks to continued elevated demand amid the COVID-19 pandemic. This took Sheng Siong's FY20 revenue growth to ~40% (on robust SSSG growth of ~29%).
  • 4Q20 gross profit margin was sequentially higher at 27.3% (3Q20: 27.0%), lifting FY20 gross profit margin to 27.4% (12M19: 26.9%).
  • FY20 other income was S$41m, comprising mainly gross values of government grants and property tax rebates that were utilised to set off additional salaries/staff expense and rental rebates for Sheng Siong’s tenants.
  • All in, Sheng Siong's FY20 core net profit surged ~83%.
  • Sheng Siong announced a final dividend of S$0.03, taking total FY20 dividend to S$0.065 per share, within our 70% payout expectation.

Store strength now at 63; more supermarket bids available in FY21F

  • Sheng Siong ended Dec 20 with 63 stores (571.2k sq ft) after opening three stores (cumulative area of 22.1k sq ft) in 2H20, and closing its Penjuru Dormitory store (inactive since 1Q20) in Oct 20.
  • Open bidding for supermarkets in Singapore has taken a breather since Nov 20 (when two tenders were called, but no results so far) but according to Singapore’s Housing Development Board (HDB), there will be five open bids in 2021; five in 2022 and eight in 2023 (cumulative acreage of at least ~34k, ~29k, and ~41k sq ft, respectively).
  • We forecast store acreage addition of 25k in FY21F and 20k in FY22F for Sheng Siong.

Weaker FY21F EPS due to high base; FY23F numbers introduced

  • Our FY21-22 forecasts for Sheng Siong are relatively unchanged (slight tweaks). We project 21.7% decline in FY21F earnings per share as we expect Sheng Siong’s revenue-per-square feet to gradually decline as the country recovers from the impact of COVID-19. Thereafter, we expect a 3.7% pick-up in FY22F earnings per share, mainly on the back of new stores additions. We introduce our FY23 forecasts; we expect 2.8% earnings per share growth, supported by store acreage addition of 20k sq ft.

Reiterate ADD; still a defensive pick

Cezzane SEE CGS-CIMB Research | https://www.cgs-cimb.com 2021-02-25
SGX Stock Analyst Report ADD MAINTAIN ADD 1.880 SAME 1.880