+ Record gross margins. Gross margins of 28.9% were the highest by far, surpassing their previous high of 28.1% at the height of the pandemic in 2Q20 due to pantry loading. Margin expansion was driven by a higher mix of fresh-food sales and house brands. Fresh foods were evenly contributed by seafood, meats and fresh produce. House brands were predominantly rice, oil, washing and paper products. In-house product range also expanded into dry foods, snacks and processed and frozen ready-to-eat foods.
– Still no store openings. SSG has submitted bids for two HDB stores recently. The outcome may be known in three months. Add another 1-2 months for store opening and any new stores will likely only materialise at year-end. The authorities may release six new supermarkets for bidding in 2022 and another eleven in 2023.
Revenue remains elevated at S$2,387/sq ft, around 25% higher than pre-pandemic levels of S$1,916 in FY19. Dining restrictions and borders closures should lead to more frequent dining and time spent at home, fuelling grocery demand. Gross margins at 28% could be the new norm as fresh foods and house brands gain further traction. SSG has doubled stores in China to four but revenue remains low at only 3% of group revenue. It will continue to build up its e-commerce capacity as order fulfilment and delivery are the main bottlenecks to growth. Another challenge is higher resistance to higher-margin fresh-food purchases online. Low-margin bulkier, heavier and costlier-to-deliver items are still the most popular.
Maintain ACCUMULATE with lower TP of S$1.69, from S$1.71
ROEs remain commendable at 25%, dividend yields at 3.2% and net cash at S$228mn (as at Jun 2021), in our estimation. Stock catalysts are expected from new store openings and improving margins.