We upgrade Sheng Siong Group’s (SSG) FY13/14 revenue growth to 10% (previously 5% and 3% respectively) on the back of full-year contributions from the eight new stores opened in FY12. The absence of further price competition amongst the Big 3 supermarket chains and lingering doubts over the macro-environment will also provide support for this defensive counter. In addition, we anticipate a continuation of the 90% net profit dividend payout policy, which will further enhance its attractiveness in FY13 and beyond. As we roll our projections forward, our discounted cash flow to equity valuation increases to S$0.55 from S$0.49 previously. Maintain BUY.
Double-digit growth to continue
We upgrade Sheng Siong Group’s (SSG) FY13/14 revenue growth to 10% (previously 5% and 3% respectively). Full-year contributions from the eight new stores opened in FY12 – representing an increase of 14% in gross retail space – justify this adjustment. Furthermore, SSG’s strategy of opening stores in under-represented areas (i.e. those with a growing or sizeable resident population) has allowed the group to benefit from the build-up in pent-up consumer demand. This is demonstrated by the success of its Geylang and Bukit Batok stores, which broke-even only after a month of operations.
Macro-environment remains conducive
Being a counter with defensive qualities, lingering macro uncertainty will continue to prove supportive for the segment as consumers exercise prudence in dining habits.
Threat of price competition diminished
With rising operating expenses (due mainly to wage pressures), we deem the re-occurrence of price competition amongst the Big 3 supermarket chains to be remote. It is not in the interest of the Big 3 to cut into their margins further by waging an unnecessary price war. Instead, it is likely that a tacit agreement to maintain status quo exists amongst the Big 3.
90% dividend payout policy likely to remain
FY12 will the last year SSG commits to paying out 90% of its PAT as dividends. However, in our opinion and earnings projections, SSG should have no difficulties if it chooses to persist on its 90% PAT dividend payout commitment. Its cash balances have remained above S$100m since 3Q11 despite a significant increase in its store network, increasing inventory requirements, and no borrowings, which clearly signify that store expansion is unhindered.
Maintain BUY
While SSG will experience a seasonally weaker 4Q12, it is still on track to finish the year out strongly. As we roll our projections forward, our discounted cash flow to equity valuation increases to S$0.55 from S$0.49 previously. Maintain BUY.
We upgrade Sheng Siong Group’s (SSG) FY13/14 revenue growth to 10% (previously 5% and 3% respectively). Full-year contributions from the eight new stores opened in FY12 – representing an increase of 14% in gross retail space – justify this adjustment. Furthermore, SSG’s strategy of opening stores in under-represented areas (i.e. those with a growing or sizeable resident population) has allowed the group to benefit from the build-up in pent-up consumer demand. This is demonstrated by the success of its Geylang and Bukit Batok stores, which broke-even only after a month of operations.
Macro-environment remains conducive
Being a counter with defensive qualities, lingering macro uncertainty will continue to prove supportive for the segment as consumers exercise prudence in dining habits.
Threat of price competition diminished
With rising operating expenses (due mainly to wage pressures), we deem the re-occurrence of price competition amongst the Big 3 supermarket chains to be remote. It is not in the interest of the Big 3 to cut into their margins further by waging an unnecessary price war. Instead, it is likely that a tacit agreement to maintain status quo exists amongst the Big 3.
90% dividend payout policy likely to remain
FY12 will the last year SSG commits to paying out 90% of its PAT as dividends. However, in our opinion and earnings projections, SSG should have no difficulties if it chooses to persist on its 90% PAT dividend payout commitment. Its cash balances have remained above S$100m since 3Q11 despite a significant increase in its store network, increasing inventory requirements, and no borrowings, which clearly signify that store expansion is unhindered.
Maintain BUY
While SSG will experience a seasonally weaker 4Q12, it is still on track to finish the year out strongly. As we roll our projections forward, our discounted cash flow to equity valuation increases to S$0.55 from S$0.49 previously. Maintain BUY.
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