Sheng Siong Group - UOB Kay Hian 2022-04-29: 1Q22 Results Above Expectations; Demand Likely To Moderate In 2022


Sheng Siong Group - 1Q22 Results Above Expectations; Demand Likely To Moderate In 2022

  • Sheng Siong’s 1Q22 net profit of S$35m (+14% y-o-y) was above expectations, forming 30% of our full-year estimates. Revenue rose 6% y-o-y due to comparable same-store sales increase while gross margin increased 1ppt to 28.7% on a better sales mix.
  • We expect demand to taper off in 2022, as COVID-19 restrictions have been eased. However, consumers may increasingly dine at home to cope with inflation pressure. We raised our 2022 earnings per share forecast for Sheng Siong by 9%.

Sheng Siong's 1Q22 results above expectations.

  • Sheng Siong (SGX:OV8) reported 1Q22 earnings of S$35m, beating our expectation due to better-than-expected gross margin, and accounting for 30% our full-year estimate. 1Q typically forms around 26% of full-year earnings due to higher seasonality. Revenue rose by 6% y-o-y, and comparable same-store sales increased 4.7% y-o-y in Singapore and 1.0% y-o-y in China. New stores contributed 0.3% increment to total revenue.
  • Record-high gross margin but lower other income. 1Q22 gross profit margin improved by 1.0ppt to 28.7% due to a favourable sales mix. On the other hand, other income fell 17% y-o-y in 2021, as government grants received were reduced in pace with recovery from the pandemic. The percentage of other income contributed by government grants has fallen to 30.7% in 1Q22 vs 46.4% in 1Q21.
  • Elevated demand for groceries may taper off in 2022 as most of the COVID-19 restrictions have been eased. Inflation is tied in deeply with SSG’s input cost and its customers’ spending. On the back of inflationary pressures, consumers are increasingly concerned with the higher cost of living, and may choose to dine in more at home, and look at ways to stretch their dollar. This may continue to support sales at the supermarkets.

New store opening outlook.

  • For the past two years, Sheng Siong has seen the supply of new taper off in 2022 as:
    1. Singapore pivots to treating COVID-19 an endemic,
    2. COVID-19-linked restrictions are gradually eased, and
    3. vaccinated travel lanes are extended to more countries.

Sheng Siong - Earnings forecast revision & recommendation

John Cheong UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-04-29
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