Sheng Siong

OCBC on 13 Apr 2012

Ahead of Sheng Siong Group’s (SSG) 1Q12 results, we are anticipating a YoY increase in its 1Q12 revenue following additional contributions from more stores and higher sales volumes following the Chinese New Year festivities. In terms of its margins, we expect increased sales turnover over the CNY period and higher rebates from suppliers to overcome sustained price competition amongst the big three local supermarket chains. With SSG’s share price relatively unchanged since the release of its FY11 results, it is our view that the above expectations have been priced in, and the counter should continue to remain stable going forward. As such, with recent market weakness and uncertainty, we reiterate our belief that SSG offers investors downside protection with the addition of an attractive dividend yield (FY12F: 5.8%). Maintain our HOLD rating at an unchanged fair value estimate of S$0.49.

Price consolidation so far
Sheng Siong Group’s (SSG) share price has consolidated around the S$0.48-S$0.50 range since the release of its FY11 results more than a month ago. By comparison, the FTSE STI Index was almost flat over the same period although it experienced greater fluctuations. Given the defensive qualities of SSG and its stable business operations (consumer staples), we view this price consolidation as a trend that will likely continue even after the release of its 1Q12 results around the last week of April.

1Q12 results preview – higher revenues
With Chinese New Year (CNY) in 1Q12, we expect revenue contribution from the quarter to be the highest for the year as supermarkets tend to enjoy peak volumes during this festive period. Furthermore, SSG should record a YoY improvement in 1Q revenues following full quarter contributions from its Woodlands and Thomson stores, as compared to last year’s loss in revenue after the closure of its Ten Mile Junction store locations.

1Q12 results preview – margins to maintain
Although price competition amongst the three big local supermarket chains continued into 2012 due to the early start of the festive period, we expect gross profit margins to at least maintain or improve slightly on a QoQ basis (4Q11: 19.3%) with margin support coming from increased sales turnover over the CNY period and higher rebates from suppliers.

Store expansions on the way
Although no new stores were added in 1Q12, four new stores (Jalan Besar, Geylang and Toa Payoh) are being prepped for operations by the end of 1H12. The new stores will add about 30.3K sf to its overall retail space.

Decent dividend play; maintain HOLD
With no other surprises expected for SSG’s 1Q12 results, we leave our FY12 projections unchanged and maintain our HOLD rating at the same fair value estimate of S$0.49. Given recent market weaknesses, we reiterate our belief that SSG offers a quality, defensive play into domestic consumption demand and downside protection. In addition, with a committed 90% of net profit payout in FY12, SSG presents an attractive dividend play opportunity with an expected yield of about 5.8%.