Thursday, October 31, 2013

Sheng Siong Group :S$54.9m acquisition (CIMB)

Sheng Siong Group  
Current S$0.63
Target S$0.74
S$54.9m acquisition

▊ Sheng Siong has purchased 18,500sf of retail space in the upcoming Junction 9, a mixed development in Yishun consisting of retail and residential components, for S$54.9m. TOP is planned for June 2017. This store will benefit from URA’s plan to rejuvenate Yishun town. The acquisition price represents 2.8% yield based on pro forma net property income but 6.1% yield if we factor in the potential store earnings rather than rental income. No change to our estimates or target price, still based on 23x CY14 P/E (10% disc. to Dairy Farm). Catalysts could come from earnings delivery from existing new stores. We keep our Outperform call.

What Happened
Sheng Siong has purchased six units of shop space totalling 18,500 sf on the 2nd floor of the upcoming Junction 9, a mixed development comprising retail and residential components. The units are 99-year leasehold commencing 30 April 2013. The developer is Chip Eng Seng and the project’s expected TOP is June 2017. The consideration will be paid on a stage-of-completion basis; only 20%, or S$11m, has to be paid upfront before 18 November 2013.  
What We Think
Yishun may be a mature estate but it is set to benefit from URA’s plan to rejuvenate the area. Another 40,000 homes will be added over the next decade to the existing 131,000 homes. The store’s location in the upcoming Junction 9 itself sees captive shoppers in the form of the 186 residential units on the higher floors. Furthermore, the decent car park size (136 lots) and its proximity to the Yishun ring road should provide strong traffic flow. The acquisition price does appear to be on the high end with an implied capital value of S$2,968 psf and yield of 2.8% based on net property income of S$1.53m, as disclosed in its pro forma financials. However, we think yield-on-cost calculations need to be tempered by the potential earnings power of the store because Sheng Siong is not buying the property to let. And, on this basis, we think the store can earn about S$3.3m, which represents a more palatable 6.1% yield on cost.  
What You Should Do
Maintain Outperform with catalysts to come from earnings delivery from new stores.

Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 28/10/13

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