SSG's 3Q13 earnings of SGD10.6m (+8% y-o-y, +24% q-o-q) were in line with our SGD9.8m estimate as margins continued to improve. The stock offers  dividend  yields  of  >4%  on  earnings  growth  averaging  14%  over next two years, and we see room for possible special dividends from its SGD108m  cash  pile.  Maintain  BUY,  albeit  at  a  slightly  lower  DCF-derived TP of SGD0.74, on a higher risk-free rate assumption.    

- 3Q13 revenue up 5%  y-o-y. Sheng Siong (SSG)'s 3Q13 revenue grew 5% y-o-y to SGD178m (our estimate: SGD174m), as a SGD13m maiden contribution from its new stores was partially offset by a SGD5m decline in  revenue  at  its  existing  ones.  In  3Q13,  competition  was  keen  while traffic  flow  at  its  Bedok  Central  and  The  Verge  stores  continued  to  be affected by construction activities.   

- SSSG  contraction  slows  down.  SSG's  same-store  sales  growth (SSSG) was estimated to have dipped 2.7%, although this was likely an improvement  from  2Q13's 5%  contraction.  SSG currently  has  33 stores with 400k sq ft of retail area (3Q12: 31 stores with 391k sq ft).

- GPM  widens  by  0.3ppts.  The  wider  GPM  was  mainly  driven  by operating  efficiencies  following  the  commencement  of  its  distribution centre  in mid-2011.  As  a  percentage  of  revenue,  operating costs  ticked up slightly to 16.7% in 2Q13 (2Q12: 16.6%).  

- Tweaking  estimates.  After  fine-tuning  our  assumptions,  we  discover that  the  resulting  net  impact  on  our  FY13F  and  FY14F  earnings estimates  is  immaterial,  with  variances  of  +3%  and  +2%  respectively. For 4Q, we expect earnings to grow slightly by 7% y-o-y to SGD8.5m.

- Maintain  BUY,  with  lower  SGD0.74  TP.  The  stock  offers  dividend yields  of  above  4%  on  an  average  14%  earnings  growth  over  the  next two  years.  Despite  having  distributed  some  SGD41m  dividends  so  far this  year,  SSG's net  cash  remains  high  at  SGD108m,  leaving  room  for possible  special  dividends  to  be  dished  out.  We  lift  our  risk-free  rate assumption  to  3.0%  from  2.5%.  This  lowers  our  TP  to  SGD0.74,  which implies  a  24x  FY14F  P/E  with  a  projected  dividend  yield  of  3.9%. Maintain BUY.

Source: OSK