Saturday, July 27, 2013

Sheng Siong :Margins, new stores support earnings (DBSV)

Sheng Siong Group,
Buy S$0.695,
Margins, new stores support earnings
Price Target : 12-Month S$ 0.80 (Prev S$ 0.78)

•2Q13 earnings slightly below;  margin expansion and contribution by new stores offset by store renovations and competition
•Margins to expand further, earnings should improve sequentially from seasonally weak 2Q
•Dividend yield of c.4% supports share price, interim DPS of 1.2 Scents declared
•Maintain BUY, TP S$0.80

Highlights
Earnings slightly below, new stores and higher margins contributed to growth. 2Q13 net profit came in at S$8.5m (+21% y-o-y), while revenue was S$160m, (+9%), driven by contribution from 8 new stores and margin expansion.
 Sales of some existing stores declined marginally, but this was due to one-off reasons such as construction activities in their vicinity and store renovation.  Some stores faced competition.  However, this has already been addressed as new promotional initiatives were launched to counteract the competition. 1H13 earnings of S$19m accounts for 45% of our full year earnings forecast of S$42m.  SSG declared interim DPS of 1.2 Scents.

Margin expanded strongly.  SSG’s margins continue to expand with gross margins reaching 23.2%, from 22.5% in 1Q13 and 21.9% in 2Q12.  SSG enjoyed better sales mix of fresh vs dried groceries, and lower input costs from bulk purchasing.

Our View
Margins will continue to expand. SSG’s margin expansion strategy is on track.  We expect margin to continue to head higher as SSG increases sales contribution of fresh food, house brands and intensifies its centralised bulk purchasing activities.
Earnings should improve sequentially as 2Q is the weakest quarter. Despite 2Q13 earnings coming in marginally below our expectations, we do not see significant downside risks to earnings and DPS.  The second quarter tends to be seasonally weaker due to lack of festive seasons.  Increased contribution from new stores and margin expansion together with new A&P strategies should see earnings improve sequentially in 3Q13.  Share price is supported by c.4% yield in FY13F and FY14F, on the back of resilient earnings.

Recommendation
Maintain BUY, TP S$0.80. Due to a marginally weaker 2Q13, we have lowered our FY13/14F earnings slightly by 4%/2%. Rolling over valuation base to FY14F earnings, our TP is S$0.80 based on target PE of 25x.  Maintain BUY.



Source/Extract/Excerpts/来源/转贴/摘录: DBSV-Research,
Publish date: 24/07/13

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