Sheng Siong

OCBC on 27 Jul 2012

There were no surprises in Sheng Siong Group’s (SSG) reported 2Q12 results. Revenue grew 5.2% YoY to S$146.9m while net profit inched lower by 2% YoY to S$7m. In terms of SSG’s 1H performance, revenue grew 4.6% YoY to S$306.7m and net profit increased 41.5% YoY to S$23.9m to form 47.3% and 54.2% of our FY12 top and bottom-line projections respectively. SSG also declared an interim dividend of 1 cent per share. Going forward, with the increased possibility of Singapore’s growth falling below 1% this year, consumer spending as a whole is poised to decline further as consumers tighten up. This scenario should bode well with SSG as consumers transition from F&B spending to eating-in more. As such, we expect revenue growth to hold firm and offset the upward cost pressures from staff wages and rent. Leaving our FY12/FY13 projections unchanged, we maintain our fair value estimate of S$0.49 and BUY rating.

No surprises in 2Q12 results
There were no surprises in Sheng Siong Group’s (SSG) reported 2Q12 results. Revenue grew 5.2% YoY to S$146.9m while net profit inched lower by 2% YoY to S$7m. On a sequential basis, revenue and net profit declined 8% and 58.2% respectively on seasonality factors and the one-off S$10.5m gain from the sale of its Marsiling warehouse, which was recorded in 1Q12. However, excluding the one-off gain, net profit rose 11% on the back of gross profit margin improvements. In terms of SSG’s 1H performance, revenue grew 4.6% YoY to S$306.7m and net profit increased 41.5% YoY to S$23.9m to form 47.3% and 54.2% of our FY12 top and bottom-line projections respectively. SSG also declared an interim dividend of 1 cent per share.

Gross profit margins improve
As expected, 2Q12 gross profit margin climbed higher by 1 percentage point to 21.9% (1Q12: 20.8%) following the easing of competition amongst the Big 3 supermarkets. Although margins are still down on a YoY basis (2Q11: 22.9%), we believe that the trend of higher comparable same store sales and the favourable responses to SSG’s new stores will continue to push margins back to the upper ranges of 22%-23%.

More retail space to come
As part of its drive to increase presence in locations with lower representation, SSG announced the addition of two more stores at Bukit Batok and Bedok North, which will bring the total retail space to 385K sf (378K sf previously). Coupled with the 24-hr outlet in Geylang that was opened in early July, SSG’s revenue growth will continue in the second half of the year.

SSG to benefit from weakening sentiment
With the increased possibility of Singapore’s growth falling below 1% this year, consumer spending as a whole is poised to decline further as consumers tighten up. This scenario should bode well for SSG as consumers transition from F&B spending to eating-in more. As such, we expect revenue growth to hold firm and offset the upward cost pressures from staff wages and rent. Leaving our FY12/FY13 projections unchanged, we maintain our fair value estimate of S$0.49 and BUY rating.