Sheng Siong Group Ltd Resilience despite no new shops April 28, 2021 333

PSR Recommendation: ACCUMULATE Status: Maintained
Target Price: 1.71
  • 1Q21 revenue and earnings were within expectations, at 27%/30% of forecasts. 1Q21 benefitted from festive spending.
  • Gross margins remained elevated at 27.6% vs. pre-pandemic’s 26.8%.
  • No new stores were opened in past six months. Tenders of new HDB stores have been delayed, except for one large upcoming bid.
  • Our FY21e PATMI and target price of S$1.71 are unchanged, at 25x P/E, its 5-year historical average. Maintain ACCUMULATE. With international borders still closed, revenue should remain above pre-pandemic levels. FY22e to benefit from accelerated rollout of new stores. 1Q21 annualised revenue per sq ft was S$2,363, towering above S$1,916 in pre-pandemic 2019.

 

The Positives

+ Revenue resilience. Revenue growth was entirely powered by new stores opened for a year. 1Q21 annualised revenue per sq ft remained a lofty S$2,363 vs. pre-pandemic’s  S$1,916 in 2019. Gross margins at 27.6% were above historical levels of 26.8%, thanks to lower input prices and a higher sales mix of fresh goods.

 

+ Healthy cash and strengthening balance sheet. Operating cash flow generated in 1Q21 was S$28.8mn. Net cash is now S$241mn (4Q20: S$224mn).

 

The Negative

– No store openings. There were no new store openings in the past six months. SSG was not successful in two tenders in November. HDB has temporarily paused on tenders except for a large store SSG is looking to bid in the current quarter which could potentially be rolled out in 3Q21.

 

Outlook

1Q21 revenue per sq ft remained elevated at S$2,363 on an annualised basis (FY20: S$2,423). A reason was the continued closure of international borders, which kept more households in the country. Working from home was another contributor. As borders re-open, growth in FY22e should stem from accelerated store expansion from the recent pause in HDB tenders.

 

Maintain ACCUMULATE with unchanged TP of S$1.71

SSG’s investment merits remain its impressive 26% ROEs, dividend yields of 3.2% and net cash of S$224mn. Stock catalysts are expected from new store openings.

 

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About the author

Profile photo of Paul Chew

Paul Chew
Head of Research
Phillip Securities Research Pte Ltd

Paul has 20 years of experience as a fund manager and sell-side analyst. During his time as fund manager, he has managed multiple funds and mandates including capital guaranteed, dividend income, renewable energy, single country and regionally focused funds.

He graduated from Monash University and had completed both his Chartered Financial Analyst and Australian CPA programme.

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