Sheng Siong Group - OCBC Investment 2021-02-26: A Stellar Year


Sheng Siong Group - A Stellar Year

  • 2H20 demand remained strong, same store sales were the key revenue driver.
  • Total dividend of S$0.065 per share from Sheng Siong for FY20 (+83% y-o-y).

Sheng Siong's FY20 results beat expectations

  • Sheng Siong (SGX:OV8)’s FY20 results were above our estimates due to stronger-than-expected sales and other income (mainly from government grants). FY20 revenue rose 40.6% y-o-y to S$1.4b while PATMI was up 83.1% y-o-y to S$138.7m, mainly attributable to elevated demand due to COVID-19.
  • Demand remained strong in 2H20, supported by workers working from home and fears of contagions.
  • Gross profit margin increased by 0.5 ppt y-o-y to 27.4%, largely due to fewer promotions and also supported by strong demand and improved sales mix with a higher proportion of fresh items.
  • A final dividend of S$0.03 per share was declared, taking Sheng Siong's total dividend for FY20 to S$0.065 per share (+83% y-o-y).

Sheng Siong opened 5 new stores in FY20

  • As at 31 Dec 2020, Sheng Siong has 63 stores in Singapore and 2 stores in China. Sheng Siong opened 5 new stores in FY20.
  • The bidding process for supermarkets was impacted by COVID-19 and there was only one tender in Nov 2020 for two new HDB shops for use as supermarkets. Sheng Siong is pending the results of the tender.
  • Given the delay in bidding process and completion of projects, we expect Sheng Siong to open 3-4 stores in FY21.

Demand could moderate slightly in FY21

  • Same store sales were the key revenue driver in FY20. Of the 40.6% increase in revenue, 29.1 ppt was contributed by comparable same store sales and 10.5 ppt by new stores, with the remaining 1.0 ppt from the stores in China.
  • Looking ahead, we believe new stores growth will remain Sheng Siong’s key growth driver and strategy.
  • We expect domestic market conditions to remain fairly muted in FY21, despite the rollout of vaccines in Singapore as the latter will take time to vaccinate the entire population in Singapore. This will mean that social distancing and the change to eat more frequently at home are likely to remain in 2021 and should help to support supermarket sales growth in the first 2-3 quarters.
  • See Sheng Siong Share Price; Sheng Siong Target Price; Sheng Siong Analyst Reports; Sheng Siong Dividend History; Sheng Siong Announcements; Sheng Siong Latest News.
  • Nevertheless, we expect a gradual economic recovery in 2021-2022, and taking this into consideration, we have adjusted our Sheng Siong's FY21/FY22 earnings forecast by -7%/-5% as economic activities recover from COVID-19 lows.
  • After adjustments, our fair value estimate for Sheng Siong decreases from S$1.85 to S$1.79.

Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2021-02-26
SGX Stock Analyst Report BUY MAINTAIN BUY 1.79 DOWN 1.850