Sheng Siong - UOB Kay Hian 2022-02-25: 2021 Above Expectations; Demand Likely To Moderate In 2022


Sheng Siong - 2021 Above Expectations; Demand Likely To Moderate In 2022

  • Sheng Siong’s 2021 net profit of S$133m (-4.3% y-o-y) was in line with expectations, forming 102% of our full-year estimates. 2021 revenue fell 1.7% y-o-y due to a higher base in 1H20, which experienced elevated demand from COVID-19, while gross margin improved 1.3ppt to 28.7% on a better sales mix.
  • We expect demand to taper off in 2022, as Singapore pivots from treating COVID-19 as a pandemic to an endemic. We raised our 2022F earnings per share forecast for Sheng Siong by 3%. Maintain HOLD.

Sheng Siong's 2021 results in line with expectations.

  • Sheng Siong Group (SGX:OV8) reported 2021 earnings of S$133.1m (-4.3% y-o-y). 2021 earnings met 102% of our full-year estimates. Revenue declined by 1.7% y-o-y due to a high base in 2020, underpinned by elevated demand in 1H20 due to the COVID-19 pandemic. Comparable same-store sales declined by 4.8% y-o-y, partially offset by a 2.9% increment from the full-year operations of five new stores that were opened in 2020.
  • Record-high gross margin but lower other income. 2021 gross profit margin improved by 1.3ppt to 28.7% in 2021, arising from favourable sales mix. On the other hand, other income fell 70.6% y-o-y in 2021, as government grants received were reduced to S$4.8m following a stabilisation of the COVID-19 pandemic. In 2020, Sheng Siong received support grants of S$34.9m in the form of COVID-19 Budget Supplementary Packages, Wage Credit, and Special Employment Schemes.
  • Continued expansion and diversify supply source. Sheng Siong was successful in its bid and secured leases of three stores in 2021, with two stores to begin operations in 1H22. Moving forward, Sheng Siong will continue to search for suitable retail outlets in Singapore, particularly in areas where it does not have a presence.
  • Sheng Siong is also committed to diversifying its supply sources to reduce risks of disruptions and ensure stable input prices.

New store openings outlook.

  • Sheng Siong opened five new stores in the Singapore supermarket index.
  • Demand is expected to moderate as Singapore transitions to COVID-19 endemic living. We expect demand to taper off in 2022 as:
    • Singapore pivots to treating COVID-19 as a pandemic to an endemic,
    • COVID-19-linked restrictions are gradually eased, and
    • vaccinated travel lanes are extended to more countries.

Sheng Siong Group - Earnings forecast and recommendation

John Cheong UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-02-25
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.63 UP 1.580