Target Price: SGD0.74
3Q13 Margins Improve Further
SSG’s 3Q13 earnings of SGD10.6m (+8% y-o-y, +24% q-o-q) were in line with our SGD9.8m estimate as margins continued to improve. The stock offers dividend yields of >4% on earnings growth averaging 14% over next two years, and we see room for possible special dividends from its SGD108m cash pile. Maintain BUY, albeit at a slightly lower DCF-derived TP of SGD0.74, on a higher risk-free rate assumption.
• 3Q13 revenue up 5% y-o-y. Sheng Siong (SSG)’s 3Q13 revenue grew 5% y-o-y to SGD178m (our estimate: SGD174m), as a SGD13m maiden contribution from its new stores was partially offset by a SGD5m decline in revenue at its existing ones. In 3Q13, competition was keen while traffic flow at its Bedok Central and The Verge stores continued to be affected by construction activities.
• SSSG contraction slows down. SSG’s same-store sales growth (SSSG) was estimated to have dipped 2.7%, although this was likely an improvement from 2Q13’s 5% contraction. SSG currently has 33 stores with 400k sq ft of retail area (3Q12: 31 stores with 391k sq ft).
• GPM widens by 0.3ppts. The wider GPM was mainly driven by operating efficiencies following the commencement of its distribution centre in mid-2011. As a percentage of revenue, operating costs ticked up slightly to 16.7% in 2Q13 (2Q12: 16.6%).
• Tweaking estimates. After fine-tuning our assumptions, we discover that the resulting net impact on our FY13F and FY14F earnings estimates is immaterial, with variances of +3% and +2% respectively. For 4Q, we expect earnings to grow slightly by 7% y-o-y to SGD8.5m.
• Maintain BUY, with lower SGD0.74 TP. The stock offers dividend yields of above 4% on an average 14% earnings growth over the next two years. Despite having distributed some SGD41m dividends so far this year, SSG’s net cash remains high at SGD108m, leaving room for possible special dividends to be dished out. We lift our risk-free rate assumption to 3.0% from 2.5%. This lowers our TP to SGD0.74, which implies a 24x FY14F P/E with a projected dividend yield of 3.9%. Maintain BUY.
Publish date: 24/10/13