Sheng Siong Group: Core 9M17 Results Within Expectations

Date: 30/10/2017

Source  :  OCBC
Stock  :  Sheng Siong       Price Target  :  1.04      |      Price Call  :  BUY
        Last Price  :  1.12      |      Upside/Downside  :  -0.08 (7.14%)

  • Recorded S$2.2m in tax refunds
  • Margins to remain stable
  • China store will take time to ramp up

Higher Gross Profit Driven by Revenue Growth

Sheng Siong Group’s (SSG) 9M17 PATMI grew 12.1% YoY to S$53.0m, driven mainly by higher gross profit contributed largely by an increase in revenue of 5.0% to S$629.6m and S$2.2m in refund of prior years’ taxes. 9M17 revenue was driven by new stores (+5.1%) and same store sales (+0.9%), but offset by a 1.0% YoY decline in revenue from Loyang Point and The Verge stores. However, excluding the tax refunds, 9M17 core PATMI grew by a smaller 7.3% YoY to S$50.8m, and formed 79% of our full year estimates. 9M17 gross profit margin remained stable at 25.8% due to efficiency gains derived from the central distribution centre and higher rebates from suppliers in 1H17.

Still on the Lookout to Open More New Stores

SSG’s new 4,000 sq ft store at Bukit Panjang opened in August 17 while the 41,500 sq ft store at Woodlands will be permanently closed in Nov 17 as HDB is re-developing the land. The successful bid for three new HDB shops at Woodlands St 12 (11,800 sq ft), Edgedale Plains in Punggol (3,100 sq ft) and Anchorvale Crescent in Sengkang (5,100 sq ft) are expected to be operational in 4Q17.

The fitting out of a new store in Kunming, China, is now completed and subjected to regulatory approvals with operations targeted to commence before endFY17. That said, we expect the ramp up of the Kunming store to take time and the performance of this store will likely shape SSG’s expansion plans in China in the future.

Looking ahead, we expect operating margin and revenue psf improvement in FY18. Revenue growth will likely be driven by more new stores, as SSG is still looking for suitable retail space, especially in areas where it does not currently have a presence.

Reiterate BUY

On in-line 9M17 results, we are keeping our forecasts unchanged. Supported by sustainable stable margins, a healthy balance sheet and strong management, we reiterate BUY on SSG with S$1.04 fair value estimate.

Source: OCBC Research - 30 Oct 2017

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