Thursday, February 27, 2014

Sheng Siong - In need of some new stores (CIMB)

Sheng Siong Group  
Current S$0.60
Target S$0.67
In need of some new stores

▊ 4Q13 did not throw up negative surprises. But, without the tailwinds of store expansion ahead, neither can earnings surprise positively. Sheng Siong remains a steady cashflow generator with a decent 4.3% dividend yield, and minimum growth. Its FY13 profits of S$38.9m was largely in line, forming 99% of our full-year forecast. Its total retail space remains unchanged at 400k sq ft. Management expects all 11 new stores opened in FY11 and FY12 to still grow in 2014; we think it is difficult to do more than 3-5% SSSG. We cut our FY14-15 EPS by 9-10%, causing our target price (still based on 22x CY15 P/E, in line with Dairy Farm’s) to fall. We maintain our Add call, with store additions (if and when economic growth slows) being a potential catalyst.

Uneventful quarter
4Q13 gross profit (S$39.5m) was 4.8% higher yoy. Sheng Siong’s gross margins over the last 3-4 quarters have been relatively stable (23.2%), suggesting that the supermarket chains are still doing well and have been able to pass on the well-aired manpower cost pressures. Its operating margins also looked stable, unlike weaker trends seen at Diary Farm’s Singapore operations. More importantly, Sheng Siong declared a final DPS of 1.4cts (in line), bringing the full year DPS to 2.6cts – a 93% actual payout vs. 90%-payout guidance.  
Worries are less on competition, more on coping with costs
Sheng Siong’s guidance sounded suitably cautious. Without new stores being opened in 2013, the focus of the entire industry seems to be on improving SSSG. It raised the issue of food inflation caused by supply chain disruptions, as a potential drag on margins. The tightening of rules on hiring foreign labour and the impending rise in foreign workers’ levy also puts more pressure on manpower costs. We think the industry is more focused on coping with costs than winning market share, which bodes well for margin stability.  
Give me some growth!
While there is no problem with competition, Sheng Siong’s problem has been the lack of store growth. Figure 2 shows that its yoy gross profit growth of 12% at the start of the year has slowed down to 5-6% in 2H13, as all new stores added in 2012 become mature. Without new stores, the challenge is keeping up this pace of growth, as sales growth can only grow in line with SSSG.  

Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 21/02/14

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