Sheng Siong Group

DMG & Partners, Oct 24

SHENG Siong's (SSG) Q3-13 revenue grew 5 per cent y-o-y to S$178 million (our estimate: S$174m), as a S$13 million maiden contribution from its new stores was partially offset by a S$5 million decline in revenue at its existing stores.

In Q3-13, competition was keen while traffic flow at its Bedok Central and The Verge stores continued to be affected by construction activities.

SSG's same-store sales growth was estimated to have dipped 2.7 per cent, although this was likely an improvement from Q2-13's 5 per cent contraction. The group currently has 33 stores with 400,000 sq ft of retail area (Q3-12: 31 stores with 391,000 sq ft).

The wider gross profit margin was driven mainly by operating efficiencies following the commencement of its distribution centre in mid-2011.

For Q4, we expect earnings to grow slightly by 7 per cent y-o-y to S$8.5 million.

The stock offers dividend yields of above 4 per cent on an average 14 per cent earnings growth over the next two years.

Despite having distributed some S$41 million in dividends so far this year, SSG's net cash remains high at S$108 million, leaving room for possible special dividends to be dished out. We lift our risk-free rate assumption to 3 per cent from 2.5 per cent. This lowers our TP to S$0.74, which implies a 24 times FY14F PE with a projected dividend yield of 3.9 per cent.

BUY