Sheng Siong Group - UOB Kay Hian 2021-04-28: 1Q21 Within Expectations; Demand To Taper Off In The Quarters Ahead

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

Sheng Siong Group - 1Q21 Within Expectations; Demand To Taper Off In The Quarters Ahead

  • Sheng Siong’s 1Q21 net profit of S$30.8m (+7.7% y-o-y) was within expectations, forming 29% of our full-year estimates. Revenue grew at a slower pace (+2.7% y-o-y) given the high base in 1Q20 while gross margin expanded 0.6ppt from better input prices.
  • We expect demand to taper off in the coming quarters, in line with the containment of the pandemic and the progressive rollout of vaccinations in Singapore. Maintain HOLD with an unchanged target price of S$1.74.



Sheng Siong Group's 1Q21 Results


Results within expectations.

  • Sheng Siong Group (SGX:OV8) reported 1Q21 earnings of S$30.8m (+7.7% y-o-y). The results account for 29% of our full-year estimates, which we deem in line with expectations given the seasonally strong quarter due to Chinese New Year.

Revenue growth on the back of new stores.

  • Sheng Siong's revenue in 1Q21 grew 2.7% to S$338m, a slower pace of growth compared to previous quarters given the high base in 1Q20 due to COVID-19-induced demand.
  • On an annualised basis, revenue per square feet rose to S$2,348 for 1Q21, up marginally by 1.2% compared to 1Q20.
  • Revenue growth was mainly attributed to the five new stores opened in 2020 while same-store-sales (SSS) was flat. Revenue from its China business was lower y-o-y in 1Q21 because of the contractionary effect on COVID-19-related demand.

Improvement in gross profit margin led to earnings growth.

  • Sheng Siong's gross margin came in at 27.6% in 1Q21, up 0.6ppt from 27% in 1Q20. This came on the back of better input prices while sales mix of fresh to non-fresh remained largely the same in 1Q21 compared with 1Q20. The gross margin expansion coupled with marginal improvement in revenue led to a 7.7% y-o-y growth in PATMI.


STOCK IMPACT


New store openings outlook.

  • Sheng Siong opened five new stores and closed one store in 2020, ending the year with 63 stores and a retail area of 571,150 sf (+7.9% y-o-y) in Singapore.
  • Sheng Siong shared that it was not successful in its tenders for the two HDB commercial units (Block 115A Alkaff Crescent and Block 610 Tampines North Drive) submitted in Nov 20.
  • Given the disruption to the construction industry caused by the pandemic in 2020, it is likely that more new shops tenders would be released towards the end of 2021 and 2022 as HDB rushes to clear the backlog. Sheng Siong will continue to look for retail space in new and existing HDB housing estates, particularly in locations where the group has no presence. Our forecast incorporates a 20,000sf increase in retail area for 2021, translating to 2-3 new store wins.
  • Sheng Siong’s strategy of opening new stores, especially in the past two years (10 in 2018 and 5 in 2019) is timely and has helped the group to capitalise on the stronger demand during COVID-19 and gain market share as it outperformed the Singapore supermarket index.

Demand should moderate in 2021.

  • Sheng Siong expects the elevated demand for groceries induced by COVID-19 to taper off in 2Q21, in line with the containment of the pandemic and the progressive rollout of vaccinations in Singapore. Sheng Siong expects lower revenue in 2Q21 on a y-o-y basis as elevated demand has peaked in 2Q20 (highest quarterly revenue reported). This is consistent with our estimate as we have incorporated an earnings decline of 23.4% y-o-y in 2021.

EARNINGS REVISION/ RISK

  • Our earnings estimates for Sheng Siong are largely unchanged.


VALUATION/ RECOMMENDATION



PRICE CATALYST

  • Higher-than-expected new-store openings and SSS growth.
  • Higher dividends.





John Cheong UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-04-28
SGX Stock Analyst Report BUY MAINTAIN BUY 1.74 DOWN 1.950



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