SHENG SIONG GROUP LTD (SGX:OV8)
Sheng Siong Group - Good Set Of Results
- Record gross margin at 29%.
- Opened its third store in China.
- Sales in 4Q21 likely to remain strong but could normalise in 2022.
Sheng Siong's 3Q21 results beat expectations
- Sheng Siong Group (SGX:OV8)’s 3Q21 results beat expectations due to stronger-than-expected gross profit margins. 3Q21 revenue rose 6.4% y-o-y to S$348.1m, while PATMI grew 8.2% y-o-y to S$34.4m. This growth in revenue was largely driven by new stores (+3.2% y-o-y) and comparable same store growth (+2.8% y-o-y) while the three stores in China reported a marginal growth of 0.4% y-o-y.
- Gross profit margin increased to a record high at 29% (+0.1 ppt q-o-q), mainly attributable to higher sales mix of fresh products and house brand. Sheng Siong benefitted from the closure of the Jurong fishery port, Pasir Panjang wholesale centre and wet markets, resulting in a surge in fresh food sales.
No new stores opened in Singapore
- Sheng Siong opened its third store in China in late Aug 2021 and will open a fourth store in 4Q21. As at 30 Sep 2021, Sheng Siong had 63 stores in Singapore and three stores in China.
- Sheng Siong is still pending the outcome of the two tenders which were submitted in 1H21 and did not open any new stores in Singapore in 9M21. As the COVID-19 situation improves and manpower crunch in the construction sector eases, HDB construction is likely to pick up, bringing in new supply of HDBs. Management mentioned there could be six supermarkets available for bidding in 2022.
Lower fair value estimate of S$1.63
- After adjustments, we lower our fair value estimate for Sheng Siong from S$1.73 to S$1.63. We believe demand is likely to remain strong in 4Q21 as Singapore entered the Stabilisation Phase in Sep 2021 to slow the rate of transmission and protect its healthcare system.
- Looking into 2022, we expect sales to normalise as Singapore pivots towards the “living with the endemic” approach and opens its borders gradually. However, full relaxation could take time, while social distancing, WFH trend and the tendency to eat more frequently at home are likely to remain. This should help to support supermarket sales growth.
- Valuations look attractive with Sheng Siong's Share Price trading at 19.7x blended forward P/E, ~1 standard deviation below its five-year mean of 21.3x.
- See
Sheng Siong Group - ESG Updates
- Sheng Siong Group 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
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https://www.iocbc.com/
2021-11-02
SGX Stock
Analyst Report
1.630
DOWN
1.730
