The positives
+ Improved consumer’s sentiment in 2Q17: Mature stores registered slight growth of 0.9% YoY in 2Q17 after a contractionary 2H16 and a flattish 1Q17. Excluding the drag from Woodlands 6A store, which was impacted by the impending en-bloc activity, same store sales growth (‘SSSG’) would be 1.7% YoY. Woodlands 6A store will be closed in Oct-17.
+ Margin expansion drivers remained intact: Gross margins improved 50 bps on (i) lower input prices; (ii) improvement of product mix with sales of higher-margin fresh products; and (iii) increase bulk handling.
The negatives
– Lower dividend payout: The Group does not have a fixed dividend policy and its war chest of S$26mn* could be deployed to expand by another 4 stores.
* Cash and cash equivalents of S$69.3mn as at end-Jun17, less 1H17 dividend payout of S$23.3mn and S$20mn construction cost for the new extension to the distribution centre
Outlook
Maintained ‘Accumulate’ rating and TP of S$1.06, based on unchanged 4.61 cents FY17e EPS and 23x PE multiple
Nonetheless, we adjusted FY18e PATMI 2% downwards on (i) lower revenue due to lack of growth drivers; and (ii) lower other income due to the absence of government grants from Wage Credit Scheme. We also cut our dividend payout for FY17-18e to 70%, which gives an implied dividend yield of 3.4% and 3.5% respectively.
Re-rating catalysts: (i) Successful bidding of new stores; and (ii) Improvement of product mix.
Figure 1: Changes in Retail Space/ Business Area
SSG is currently trading at 22.6x trailing PER, which is below its regional peers’ average of 34.5x.
It also provides an attractive FY17e dividend yield of 3.4%, as compared to its regional peers’ average of 1.9%.
Figure 2: Peers comparison
Lin Sin has been an investment analyst in Phillip Securities Research since June 2014, where she started as an economist, focusing on China and ASEAN macroeconomics. Currently, she covers primarily the Consumers and Healthcare sectors in Singapore equities market.
She graduated with a Bachelor of Science in Mathematics and Economics from NTU.