Sheng Siong Group’s (SSG) 2Q15 results were in line with expectations, as revenue grew 4.3% YoY to S$179m, forming 23% of our FY15 forecast. The group’s new stores contributed 4% to this growth, while 0.3% came from old stores. SSG managed to improve its gross profit margin further by 0.5 ppt to 25.2%, due to reduction in input costs and efficiency gains from its Mandai distribution centre. Net profit increased 23.1% YoY to S$13.6m.

With regards to the current environment, management cited tepid demand and intensified competition due to offers made in celebration of “SG50”. The group’s balance sheet remained healthy with net cash of S$131.7m, and they have also declared a higher DPS of 1.75c (2Q14: 1.5c). Maintain BUY, while we place our fair value estimate of S$0.92 under review pending more information at the analyst briefing later this morning.

Source: OCBC Research - 24 Jul 2015