-->

Sheng Siong Group - Phillip Securities 2021-08-02: Record Margins

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

Sheng Siong Group - Record Margins

  • Sheng Siong (SGX:OV8)'s 2Q21 revenue met but PATMI beat. 1H21 revenue and PATMI at 55%/64% of forecasts.
  • Gross margin was a record 28.9%, higher than our 27% modelled for FY21e. Higher contributions from fresh products and house brands were behind this.
  • No new stores contributing this year. Any new stores will likely be awarded only in 4Q21.
  • We raise our Sheng Siong FY21e PATMI forecast by 7% to S$109.9mn for better-than-expected margins. We also roll over our target price to FY22e, to better reflect normalised earnings.
  • With borders shut and dining restrictions still effective, Sheng Siong's revenue should remain elevated in FY21e. Still using its 5-year historical average of 25x P/E, our target price for Sheng Siong dips from S$1.71 to S$1.69. Maintain ACCUMULATE.



The Positive


Record gross margins.

  • Gross margins of 28.9% were the highest by far, surpassing their previous high of 28.1% at the height of the pandemic in 2Q20 due to pantry loading. Margin expansion was driven by a higher mix of fresh-food sales and house brands. Fresh foods were evenly contributed by seafood, meats and fresh produce. House brands were predominantly rice, oil, washing and paper products. In-house product range also expanded into dry foods, snacks and processed and frozen ready-to-eat foods.


The Negative


Still no store openings.

  • Sheng Siong has submitted bids for two HDB stores recently. The outcome may be known in three months. Add another 1-2 months for store opening and any new stores will likely only materialise at year-end. The authorities may release six new supermarkets for bidding in 2022 and another eleven in 2023.


Outlook

  • Revenue remains elevated at S$2,387/sq ft, around 25% higher than pre-pandemic levels of S$1,916 in FY19. Dining restrictions and borders closures should lead to more frequent dining and time spent at home, fuelling grocery demand. Gross margins at 28% could be the new norm as fresh foods and house brands gain further traction.
  • Sheng Siong has doubled stores in China to four but revenue remains low at only 3% of group revenue. It will continue to build up its e-commerce capacity as order fulfilment and delivery are the main bottlenecks to growth.
  • Another challenge is higher resistance to higher-margin fresh-food purchases online. Low-margin bulkier, heavier and costlier-to-deliver items are still the most popular.

Maintain ACCUMULATE with lower target price of S$1.69, from S$1.71






Paul Chew Phillip Securities Research | https://www.stocksbnb.com/ 2021-08-02
SGX Stock Analyst Report ACCUMULATE MAINTAIN ACCUMULATE 1.69 DOWN 1.710



Advertisement



MOST TALKED ABOUT STOCKS / REITS OF THE WEEK



loading.......