Sheng Siong Group
STI : 3,204.80
Price Target : 12-Month S$ 0.80
• 3Q13 results in line; earnings growth of 8% driven by contribution from new stores
• Margins expanded further from lower input costs, outperforming all quarters since listing
• Maintain BUY and S$0.80 TP; valuations more attractive post 13% share price correction
Earnings in line as new stores and margin expansion contributed to growth. 3Q13 results were in line with our expectations. Sales grew 5% y-o-y to S$178m while earnings grew
8% to S$12m. Growth was driven by contribution from new stores and better margins, despite weak SSSG of -3.5% due to a decline in sales from matured stores in older housing estates, competitors’ promotions and renovation works at Bedok Central and The Verge stores.
3Q13 margins at record high. Gross and operating margins hit a record high at 23.8% and 7%, respectively. This was a result of lower input costs from centralised bulk purchasing and distribution, as well as better sales mix of fresh vs dried groceries.
Expect quarters going forward to be flat sequentially. We believe the coming quarters will be flat as store openings are likely to moderate. We see revenue growth supported by performance from the new stores and the newly refurbished stores. We expect store openings to be slow at < 5 p.a. going forward, as competition for retail space has become challenging. Management’s expectation to open 3 new stores a year is reasonable in our view. SSG could now be looking to buy new retail space as opposed to renting and will focus on locations where it is under represented. SSG has 33 stores currently and targets to reach 50 stores eventually. We understand that the launch of the pilot test on the e-commerce front has been delayed due to internal human resource constraints. We have not factored in the potential from e-commerce in our forecast.
Maintain BUY and S$0.80 TP. Share price has declined 13% since end-April and the shares are now attractively priced at 19.6x FY14F PE, 4.6% dividend yield with ROE of 27.9%. Maintain BUY and S$0.80 TP based on 25x FY14F earnings.
Publish date: 24/10/13