• 1Q19 results within expectations
• New store ramp-ups are not over!
• Fair value remains at S$1.19

PATMI Up 5.9% YoY

Sheng Siong Group (SSG) posted a solid set of 1Q19 results which were within expectations. Revenue increased 10.1% YoY to S$251.4m due to the opening of ten new stores, offset by a decline of 1% for comparable same store sales growth (SSSG) which was in turn due to softer consumer sentiment and new stores opening nearby to some of the existing stores.

Gross profit increased 9.6% YoY to S$65.5m, with gross margin remaining stable at 26.1% (relative to 26.2% in 1Q18).  Gross margins were helped by an improved sales mix in 1Q19 with a higher percentage of fresh produce sold, but this positive was offset by lower supplier’s rebates.

PATMI increased 5.9% YoY to S$19.4m or 25.1% of our full-year forecast. Note that the Group adopted the new accounting standard, SFRS (I) 16 for 1Q19 and this had a negative impact of S$0.2m on net profit.

Comparable SSSG Finally Bucks the Trend!

We see the 1% decline for comparable SSSG in 1Q19 as a marked improvement QoQ, and note that this quarter bucked the trend of moderating growth in the previous four quarters. Recall that comparable SSSG (YoY) came in at -2.7% in 4Q18, +0.2% YoY for 3Q18, +4.2% in 2Q18, and +5.6% in 1Q18.

Looking forward, Sheng Siong has secured leases for three new HDB stores (Bukit Batok Block 292, Anchorvale Road Block 351, and Sumang Lane Block 231) which should be operational by the end of May. In addition, the Group’s subsidiary in China will be opening its second outlet in Kunming in 2H19.

Previously, we mentioned that we believe administrative expenses will normalize as a % of revenue as the 10 new stores opened in 2018 are given time to stabilize. Administrative expenses came to 16.8% of revenue in 1Q19, versus 17.3% in FY18, and comparable to the 16.6% seen in FY17.

While the environment looks likely to remain competitive, we continue to look forward to the continued ramp-up of new stores in 2019. Our fair value remains at S$1.19. We maintain BUY on SSG.

Source: OCBC Research - 30 Apr 2019