Simons Trading Research

Author: simonsg   |   Latest post: Fri, 13 Dec 2019, 4:31 PM


Sheng Siong Group - Retail Safe Haven; Still Our Sector Top Pick

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  • Reiterate BUY with higher Target Price of SGD1.32 from SGD1.23, 19% upside plus 3% dividend yield.
  • SHENG SIONG GROUP (SGX:OV8)'s 2Q19 earnings of SGD18.4m met our expectations, with 1H19 PATMI representing 49% of our full-year estimates. Excluding the non-cash accounting impact from the adoption of SFRS(I) 16, 2Q19 PATMI would have been SGD19.2m, up 12% y-o-y.
  • Sheng Siong Group declared an interim dividend of 1.75cents/share.In view of the slowing domestic economy, we favour Sheng Siong Group for its resilient earnings and expect it to continue outperforming the Singapore retail sector.

Outperforming Singapore’s Retail Sales Index

  • Sheng Siong Group's 2Q19 revenue grew 11.8% y-o-y to SGD238m, far surpassing Singapore’s retail sales, which declined 2% y-o-y in April and May.
  • Growth was largely generated by three new stores that opened in 2Q19, and 10 stores that were opened in 2018. In addition, the group opened one new store in Kunming, China in June, bringing the total number of stores in China to two.
  • SSSG, however, dipped 0.3%, in line with the grocery sector’s performance.

Gross margin improved 1ppt y-o-y

  • Gross margin improved 1ppt y-o-y, driven by a higher proportion of sales from fresh produce. This was partially offset by higher input costs for pork and vegetables due to tighter supplies.
  • We expect full-year gross margin to still outperform 2018’s number, as prices for these fresh produce items recover.


2Q19 PATMI grew 7.6% Y-o-y

  • 2Q19 PATMI grew 7.6% y-o-y or 12% y-o-y excluding the impact from SFRS(I) 16 adoption, due mainly to growth from new stores. YTD, the group has opened three new stores in Singapore and one new store in China. This brings the total store count to 57 in Singapore and two in China.
  • Sheng Siong Group has also bidded for six out of seven shops that the Housing Development Board (HDB) put out for tendering. Assuming Sheng Siong Group wins 50% of its bids, this would bring its total store count to 60 in Singapore and two in China by the end of the year.

Still the sector top pick.

  • We continue to like Sheng Siong Group as a defensive stock with resilient sales growth relative to the rest of the retail sector. On top of that, the group’s earnings growth rates are superior to the industry average given new store openings and tight cost control.
  • Management believes that it is feasible to open at least three new stores annually over the next 3-5 years.
  • We rolled over our valuation base year to FY20F, which raised our Target Price to SGD1.32 from SGD1.23.
  • Maintain BUY.

Source: RHB Invest Research - 30 Jul 2019

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