+ Gross margins still climbing. Margins hit another record high of 29.4% (3Q21: 29.0%). Supporting margins was the higher mix of fresh food and house brands. We believe the disruption last quarter in fresh food supplies diverted even more customers to Sheng Siong. Awareness is growing on the quality and price competitiveness of fresh food compared to wet markets. A similar experience is underway for house brands where more SKUS are being added particularly in the frozen category.
+ Three new stores secured. After almost five quarters without a new store, Sheng Shiong managed to open a new 5,500 sft store in Bukit Batok. Another two more stores, totalling 19,000, sft are expected to open in FY22. This will raise Sheng Siong’s total store footprint in Singapore by 4.3%.
We expect sales in FY22e to soften as borders reopen, dining restrictions lift and more return to office. Dining more at home also results in a larger budget for higher quality and pricier fresh products. We expect only a modest dip in gross margins. Sales from fresh products can creep up higher with further market share gains from wet markets. A headwind will be rising food cost and price competition.
Maintain BUY with higher TP of S$1.75 (prev. S$1.69)
SSG enjoys attractive ROEs of 27%, dividend yields at 3.7% and net cash at S$241mn (as at Dec2021).