• 2Q19 results within expectations
• Three new stores opened in May
• Fair value remains at S$1.19

PATMI Up 7.4% YoY

Sheng Siong Group (SSG) posted a solid set of 2Q19 results which were within expectations. Revenue grew 11.8% YoY to S$238.2m with gross profit growing 12.2% YoY to S$65.2m. Gross profit margin remained stable at 27.4% (0.1 ppt up YoY). 2Q19 PATMI increased 7.4% YoY to S$18.4m, making up 24% of our full-year forecast – 2Q is a seasonally weaker quarter. Out of the 11.8% YoY increase in revenue, 11.3 ppt of the revenue growth was attributed to the contribution of 13 new stores, 0.8ppt was attributed to the supermarkets in China, while -0.3ppt was attributed to a drop in comparable same store sales. An interim cash dividend of 1.75 S cents has been announced.

Comparable SSSG Continues to Improve QoQ

We note that the -0.3% same store sales growth (SSSG) is an improvement QoQ, given the -1.0% SSSG seen in 1Q19. Recall that the comparable SSSG in 1Q19 had bucked the trend of moderating growth in the previous four quarters. Comparable SSSG (YoY) came in at -2.7% in 4Q18, +0.2% YoY for 3Q18, +4.2% in 2Q18, and +5.6% in 1Q18.

Three New Stores Opened in May

SSG opened three new HDB stores in May (Bukit Batok Block 292, Anchorvale Road Block 351, and Sumang Lane Block 231), increasing total retail square footage in Singapore to 512k sq ft and increasing the store count to 57. Looking forward, competition is expected to remain keen while consumer sentiments may soften in view of an uncertain economic outlook.

SSG has tendered for six HDB shops and is awaiting the outcome (expected in August). The group continues to focus on improving gross margins by increasing the sales proportion of fresh produce and increasing the selection of house brands. Administrative expenses as a % of revenue has increased from 16.8% in 1Q19 to 17.9% in 2Q19, likely due to the opening of the three new stores in May.

We continue to believe administrative expenses will normalize as a % of revenue and move closer towards the 16.6% level seen in FY17. Given the in-line set of results, we maintain BUY on SSG with an unchanged fair value of S$1.19.

Source: OCBC Research - 31 Jul 2019