+ Another record in gross margins. Gross margins touched a record 29% in 3Q21. Driving up margins was the higher contribution of fresh products. Closure of Jurong Fishery port and Pasir Panjang wholesale centre shrunk fresh food supply in wet markets driving up demand in SSG stores. Worries on the rising cases and wet market setting led to households preference to source fresh food in supermarkets. SSG avoided the fresh food disruption by sourcing more fresh food directly from suppliers.
– No new stores this year. SSG has not secured any new stores this year. There are plans for six new stores to be bid out by HDB in 2022. The recent relaxation of foreign workers may aid in the faster build-out of HDB units and quicken the timeline in bidding out new supermarkets.
Lack of new store openings this year will dampen sales growth in FY22e. However, SSG competitive edge in managing their fresh food supply chain can elevate gross margins higher than pre-pandemic levels. Ability to source directly and diversely, scale in procurement and frequent refreshing and delivery of inventory, are some of the competitive edge SSG enjoys in fresh food. We believe the secular trend to shop in supermarkets away from wet markets has accelerated due to the pandemic. Rising prices in the current inflationary period may be beneficial for SSG due to its reputation as the cheapest grocery chain.
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SSG enjoys attractive ROEs of 25%, dividend yields at 3.2% and net cash at S$215mn (as at Sep2021). Uncertainty over normalised earnings post-pandemic and lack of new stores are some of the near-term headwinds for the share price.