Sheng Siong Group (SSG) registered a stellar set of 3Q12 results that came in well within our expectations. 3Q12 revenue grew 16.0% YoY to S$169.7m on the back of higher comparable same store sales and increased number of stores while net profit jumped 48.1% YoY to S$9.8m on operational efficiencies with the new Mandai Link Distribution Centre. SSG also recorded a third consecutive quarter of gross profit margin recovery (3Q12: 22.9% vs. 2Q12: 21.9%). Entering the seasonally weaker 4Q12, SSG will add an additional two stores in Ghim Moh and Clementi – locales with minimal competition and sizeable resident populations – and will end the year with 33 stores. With favourable responses to its store openings, we expect SSG to close out the year on a strong note. Maintain BUY with an unchanged fair value estimate of S$0.49.
Strong 3Q performance
Sheng Siong Group (SSG) registered a strong 3Q12 performance that came in well within our expectations (results were slightly below our top and bottom-line forecasts by 0.5% and 2.6% respectively). 3Q12 revenue grew 16.0% YoY to S$169.7m on the back of higher comparable same store sales and increased number of stores while net profit jumped 48.1% YoY to S$9.8m on operational efficiencies with the new Mandai Link Distribution Centre. On a sequential basis, revenue and net profit increased 15.5% and 39.5% respectively from 2Q12.
Improvement in margins as expected
The group’s gross profit margin continued to climb higher with another one percentage point (ppt) improvement in 3Q12 to 22.9% (2Q12: 21.9%) in spite of rising cost of sales. This gain marks the third consecutive quarter of margin recovery since the easing of competition amongst the Big 3 supermarkets at the end of last year. In terms of operating margins, the group recorded a gain of 1.2 ppt and 1.3 ppt on a YoY and QoQ basis respectively to 7.0% despite higher administrative expenses.
Two more stores in 4Q12
SSG is poised to increase its store network to 33 and gross retail space to 400K sf (31 stores and 391K sf previously) in 4Q12 with the commencement of operations in Ghim Moh and Clementi. As with SSG’s previous store openings this year (i.e. Geylang and Bukit Batok have broken even after only a month of operations), we expect favourable responses to these stores due to the lack of supermarket representation in the respective locales.
Maintain BUY
Although we adjusted our 4Q12 figures downwards slightly to account for seasonal weakness, SSG’s stellar 3Q12 results has reinforced our view that the group is on track to finish out the year on a strong note. Furthermore, the difficult macro-conditions have actually been conducive for the group in terms of retail spending despite margin pressures from rising costs and lingering competition amongst the major supermarket chains. Maintain BUY with an unchanged fair value estimate of S$0.49.
Sheng Siong Group (SSG) registered a strong 3Q12 performance that came in well within our expectations (results were slightly below our top and bottom-line forecasts by 0.5% and 2.6% respectively). 3Q12 revenue grew 16.0% YoY to S$169.7m on the back of higher comparable same store sales and increased number of stores while net profit jumped 48.1% YoY to S$9.8m on operational efficiencies with the new Mandai Link Distribution Centre. On a sequential basis, revenue and net profit increased 15.5% and 39.5% respectively from 2Q12.
Improvement in margins as expected
The group’s gross profit margin continued to climb higher with another one percentage point (ppt) improvement in 3Q12 to 22.9% (2Q12: 21.9%) in spite of rising cost of sales. This gain marks the third consecutive quarter of margin recovery since the easing of competition amongst the Big 3 supermarkets at the end of last year. In terms of operating margins, the group recorded a gain of 1.2 ppt and 1.3 ppt on a YoY and QoQ basis respectively to 7.0% despite higher administrative expenses.
Two more stores in 4Q12
SSG is poised to increase its store network to 33 and gross retail space to 400K sf (31 stores and 391K sf previously) in 4Q12 with the commencement of operations in Ghim Moh and Clementi. As with SSG’s previous store openings this year (i.e. Geylang and Bukit Batok have broken even after only a month of operations), we expect favourable responses to these stores due to the lack of supermarket representation in the respective locales.
Maintain BUY
Although we adjusted our 4Q12 figures downwards slightly to account for seasonal weakness, SSG’s stellar 3Q12 results has reinforced our view that the group is on track to finish out the year on a strong note. Furthermore, the difficult macro-conditions have actually been conducive for the group in terms of retail spending despite margin pressures from rising costs and lingering competition amongst the major supermarket chains. Maintain BUY with an unchanged fair value estimate of S$0.49.
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