Sheng Siong Group

Maybank Kim Eng Research, July 24

H1 2013 revenue of S$339.2 million (10.6 per cent y-o-y) and core net profit of S$19 million (26.7 per cent y-o-y) come in-line with our and consensus expectations. An interim dividend of 1.2 cents was announced (87 per cent of H1 payout), up by 0.2 cent from last year's interim dividend. We downgrade the counter on the grounds of valuations appearing toppish.

The 10.6 per cent H1 2013 sales growth is largely driven by bumper store openings from last year of S$42.8 million, but this was offset by a contraction in the older stores. SSG declined by one per cent due to higher competition, and decline in sales from the older stores ...

There are signs of margin pressure ahead. Gross margin continues to show signs of improvement on the back of improved sales mix, lower input costs, and lack of price wars with competition. This was offset by higher depreciation costs from the fitting out of new retail stores and Mandai centre. While staff costs increase was in line with store growth, Sheng Siong cautions on cost pressures from difficulties to hire and higher foreign levy, with the recent hike in service sector by 9 per cent on July 1 ...

While Sheng Siong commands strong historical margins and ROEs against its regional supermarket peers, we are concerned about competition overrunning and possible risk of Sheng Siong losing market share. We downgrade the counter to a "hold", with target price unchanged at S$0.74, pegged to 25.8 times FY2013 forecast PE.

HOLD