Results at a glance
While we will see the full impact of the two store closures in FY18e sales, operating margin should steady at the current 10% level as we expect store productivity to improve by c.11%, from S$1.8k psf (per square feet) to S$2k psf. Rent saved from closure of The Verge and Bedok Blk 209 store, which is now self-owned, also contributed to the lower operating expenses.
Upgrade to ‘Buy’ rating with higher TP at S$1.13 (previously S$1.06), as we roll forward to FY18e. Our TP is based on an upgraded estimated 4.93 cents FY18e EPS and 23x PE multiple.
We adjusted FY18e PATMI 1.6% upwards on better operating margin. We kept dividend payout for FY18e to c.70%, which gives an implied dividend yield of 3.5%.
Re-rating catalysts: (i) Successful bidding of new stores; and (ii) Improvement of product mix.
Figure 2: Changes in Retail Space/ Business Area