SHENG SIONG GROUP LTD (SGX:OV8)
Sheng Siong Group - A Strong First Half
- Record gross margin.
- An interim dividend of S$0.031.
- Expect to open 2 more stores in China by 4Q21.
Sheng Siong reported strong 1H21 results
- Sheng Siong (SGX:OV8)’s 1H21 result was above our estimates and the street’s estimates due to stronger-than-expected gross profit margins and higher sales as Singapore returned to Heightened Alert in 2Q. 1H21 revenue fell 8.8% y-o-y to S$681.7m, while PATMI declined 11.9% y-o-y to S$65.9m due to high base effect in 1H20. An interim dividend of S$0.031 per share was declared as compared to S$0.035 in the same period last year. See Sheng Siong's Dividend History.
- Gross profit margin increased to a record high at 28.2% (+0.6 ppt q-o-q), mainly attributable to higher sales mix of fresh products and house brand, as well as lower input prices.
No new store opened in 1H21
- Sheng Siong did not open any new store in 1H21 as compared to 2 new stores in 1H20. As at 30 Jun 2021, Sheng Siong had 63 stores in Singapore and two stores in China.
- Sheng Siong submitted tenders for two shops but is still pending for the outcome. As the application process will be delayed by ~3 months due to disruptions from COVID-19, and considering another 1-2 months of preparation/renovation period, we may not able to see any new store opening this year. However, as construction activities resume gradually, we could see more tenders in 2022. Management mentioned there could be six supermarkets available for bidding in 2022.
Sales in 3Q21 likely to remain strong
- Sheng Siong announced the opening of two more stores in China by 4Q21, taking the total number of stores in Kunming, China to four. We do not expect the contribution from China to be material as SSG’s two stores in China only contributed ~2% of revenue in 1H21 and gestation period typically takes 3-5 years for new stores due to stiff competition and lack of economic scales in China.
- Looking into 2H21, we believe demand is likely to remain strong in 3Q21 due to Singapore’s Heightened Alert but could moderate towards end of the year as Singapore plans to fully vaccinate 80% of its population by Sep and open its borders gradually.
- After adjustments and applying an ESG premium to our valuation, our fair value estimate for Sheng Siong increases slightly from S$1.72 to S$1.73.
- See
ESG Updates
- Sheng Siong demonstrates strong labour management and quality management initiatives, as well as initiatives to address data privacy and security as compared to its peers. Its exposure to labour-related risks is also lower than that of peers due to its smaller workforce. However, Sheng Siong lags better positioned peers in tapping growing opportunities from eco-friendly and healthier products.
- Sheng Siong’s governance ranks higher than that of industry average but its environment score trails its global peers due to its limited efforts to reduce carbon footprint.
Chu Peng
OCBC Investment Research
|
https://www.iocbc.com/
2021-08-04
SGX Stock
Analyst Report
1.73
UP
1.720
