Since our last update on 27 Jul 2012, Sheng Siong Group (SSG) has increased the total number of stores to 31, up from 27 at the end of 2Q12. Although its corresponding retail space has grown by 12.4% on a YTD basis, exceeding its full-year 10% target, management is showing no signs of letting up. With a minimum target of 33 stores by year-end, there are plans to further increase SSG presence in locations with lower representations such as Ghim Moh and Clementi. In addition to the growth in stores, SSG has also introduced a new warehouse system to enhance inventory monitoring and improve worker productivity, which is especially vital in a time where labour costs have crept upwards. Coupled with an increase in direct purchases, management is confident in its ability to improve operating margins at least by year-end and we concur with this assessment. Maintain BUY at an unchanged fair value estimate of S$0.49 ahead of its results release of its traditionally strongest quarter (3Q12).
Growth in retail space continues
Since our last update on 27 Jul 2012, Sheng Siong Group (SSG) has added an additional store in Yishun Central on top of the three stores at Geylang, Bukit Batok and Bedok North, which brings the total number of stores to 31 and gross retail space to 391 sf (385K sf previously). Although retail space has grown by 12.4% on a YTD basis, exceeding its 10% target, management is showing no signs of letting up. With a minimum target of 33 stores by year-end, there are plans to further increase SSG’s presence in locations with lower representations such as Ghim Moh and Clementi.
New warehouse system
Over the weekend, SSG unveiled a new warehouse management system designed to improve worker productivity and reduce unforced errors via enhanced inventory monitoring. The computerized system will group orders for SSG’s stores automatically and identify the respective goods to be picked up through the use of light and sound sensors. By ensuring that only the required goods – and from the correct inventory pile – are selected, SSG will be able to significantly reduce the probability of wrong goods being selected and ensure that inventory levels (e.g. by expiration dates etc) are properly maintained.
Management targets margin enhancement
With the new efficiency initiatives and ability of its warehouse to incorporate significant increases in direct purchases, management should be able to continue pushing margins back to its upper ranges of 22%-23% by the end of the year (2Q12 gross profit margin: 21.9%). Till date, direct purchases have grown and currently account for about half of SSG’s fresh fruits and vegetables requirements, up from 40% previously.
Maintain BUY on resilience
Ahead of its 3Q12 results release (expected by early to mid-Nov), SSG’s share price has held firm despite fluctuating investor sentiment. With SSG likely to experience a traditionally seasonal bump in 3Q revenue contribution, we can expect its share price to appreciate gradually ahead of its results release. Maintain BUY at an unchanged fair value estimate of S$0.49.
Since our last update on 27 Jul 2012, Sheng Siong Group (SSG) has added an additional store in Yishun Central on top of the three stores at Geylang, Bukit Batok and Bedok North, which brings the total number of stores to 31 and gross retail space to 391 sf (385K sf previously). Although retail space has grown by 12.4% on a YTD basis, exceeding its 10% target, management is showing no signs of letting up. With a minimum target of 33 stores by year-end, there are plans to further increase SSG’s presence in locations with lower representations such as Ghim Moh and Clementi.
New warehouse system
Over the weekend, SSG unveiled a new warehouse management system designed to improve worker productivity and reduce unforced errors via enhanced inventory monitoring. The computerized system will group orders for SSG’s stores automatically and identify the respective goods to be picked up through the use of light and sound sensors. By ensuring that only the required goods – and from the correct inventory pile – are selected, SSG will be able to significantly reduce the probability of wrong goods being selected and ensure that inventory levels (e.g. by expiration dates etc) are properly maintained.
Management targets margin enhancement
With the new efficiency initiatives and ability of its warehouse to incorporate significant increases in direct purchases, management should be able to continue pushing margins back to its upper ranges of 22%-23% by the end of the year (2Q12 gross profit margin: 21.9%). Till date, direct purchases have grown and currently account for about half of SSG’s fresh fruits and vegetables requirements, up from 40% previously.
Maintain BUY on resilience
Ahead of its 3Q12 results release (expected by early to mid-Nov), SSG’s share price has held firm despite fluctuating investor sentiment. With SSG likely to experience a traditionally seasonal bump in 3Q revenue contribution, we can expect its share price to appreciate gradually ahead of its results release. Maintain BUY at an unchanged fair value estimate of S$0.49.
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