Sheng Siong Group reported an excellent set of 1Q13 results with contributions from new stores boosting revenue growth by 12.3% YoY while cost management initiatives continued to improve operating margins. In the coming quarters, Sheng Siong’s outlook remains positive as the lack of any foreseeable price competition amongst the Big 3 players, and defensive consumer spending in the face of continued economic uncertainty should prove supportive for the group. That said, we expect a double-digit top-line growth and margin enhancements to sustain for FY13. We maintain BUY on Sheng Siong and increase our fair value estimate to S$0.82 from S$0.69 previously.
Excellent 1Q13 as expected
Sheng Siong Group’s (SSG) 1Q13 results came in within expectations. Revenue increased 12.3% YoY to S$179.4m while gross profit and operating margins improved to 22.5% and 6.9% respectively (+1.7 ppt and +0.9 ppt each) following continued cost management initiatives. This resulted in 1Q13 core net profit coming in 30.7% higher YoY at S$10.5m (excluding 1Q12’s one-time gain of S$10.4m from the sale of its Marsiling warehouse and S$1.6m tax provision).
Outlook remains positive for SSG
Aside from the seasonal bump related to the Lunar New Year, revenue was boosted by the contributions from the eight new stores opened since 1Q12. With this 14.9% increase in gross floor space to 400K s.f since then, SSG will experience an increase in revenue in the coming quarters even without adding further stores. That said, management maintains its 10% retail space growth target for FY13, which is achievable in our view given the ongoing estate rejuvenations plans for older estates such as Hougang.
Cost management to continue
In spite of ongoing input and wage pressures, the group’s margins have remained stable and we continue to have faith in the group’s cost management initiatives. In terms of the competitive landscape, we are unconcerned by Dairy Farm’s recent move to rebrand its Shop n Save shops to Giant stores as we believe that none of the Big 3 supermarket players would risk another price war similar to that in 4Q11. The tacit agreement since then has led to a recovery in margins for everyone.
Maintain BUY at higher fair value
Although SSG hit an all-time high yesterday (counter closed 5% higher at S$0.715), we believe that there is still further upside to go. The confluence of new store contributions and a defensive consumer spending environment lead us to adjust our projections upwards. We maintain BUY on SSG with a higher fair value estimate of S$0.82 (S$0.69 previously).
Sheng Siong Group’s (SSG) 1Q13 results came in within expectations. Revenue increased 12.3% YoY to S$179.4m while gross profit and operating margins improved to 22.5% and 6.9% respectively (+1.7 ppt and +0.9 ppt each) following continued cost management initiatives. This resulted in 1Q13 core net profit coming in 30.7% higher YoY at S$10.5m (excluding 1Q12’s one-time gain of S$10.4m from the sale of its Marsiling warehouse and S$1.6m tax provision).
Outlook remains positive for SSG
Aside from the seasonal bump related to the Lunar New Year, revenue was boosted by the contributions from the eight new stores opened since 1Q12. With this 14.9% increase in gross floor space to 400K s.f since then, SSG will experience an increase in revenue in the coming quarters even without adding further stores. That said, management maintains its 10% retail space growth target for FY13, which is achievable in our view given the ongoing estate rejuvenations plans for older estates such as Hougang.
Cost management to continue
In spite of ongoing input and wage pressures, the group’s margins have remained stable and we continue to have faith in the group’s cost management initiatives. In terms of the competitive landscape, we are unconcerned by Dairy Farm’s recent move to rebrand its Shop n Save shops to Giant stores as we believe that none of the Big 3 supermarket players would risk another price war similar to that in 4Q11. The tacit agreement since then has led to a recovery in margins for everyone.
Maintain BUY at higher fair value
Although SSG hit an all-time high yesterday (counter closed 5% higher at S$0.715), we believe that there is still further upside to go. The confluence of new store contributions and a defensive consumer spending environment lead us to adjust our projections upwards. We maintain BUY on SSG with a higher fair value estimate of S$0.82 (S$0.69 previously).
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