The Positives
+ 1Q20 revenue surged 30.7% YoY, driven by same-store sales recovery. Same-store sales spiked 19.7% YoY in 1Q20 (1Q19: -1%). The jump in sales was attributed to better consumer sentiment during the festive period, pantry stocking following the outbreak, as well as contributions from new stores opened (+9.0%).
+ House brands the new margin driver. In 1Q20, SSG managed to grow their house brands of essential products (e.g. rice, cooking oil, detergents). Margins on such house brand can be 30% higher than the typical non-fresh product margins.
The Negative
– Higher variability in admin expenses than expected. Administrative expenses jumped 28% YoY to S$54mn, mainly attributable to staff cost. Staff cost rose due to the increased working hours and higher bonus provision. We were a little surprised by the variability of the expenses and were expecting more operating leverage for this cost item.
– Slowdown in roll-out of new stores. Due to the outbreak, SSG cannot physically sign leases or renovate the new store secured via tender. Also, the circuit breaker has meant the postponement of new site tenders. There were two new stores opened in January totalling 23,540 sft. Another three new stores were secured of 22,140 sft, but yet to open. In summary, there will be at least 45,680 sft of additional retail space (or 5 new stores) in FY20. This represents an 8.6% growth in store footprint.
Outlook
The exceptional growth will persist into 2Q20.
In terms of the longer-term outlook, growth for SSG will come from new stores, capturing market share (from wet markets and malls) and scaling further house brands penetration will be the positives for SSG.
Maintain ACCUMULATE with higher TP of S$1.58 (previously S$1.41).
It is a challenge to ascertain the normalised earnings that excludes the outbreak. 1Q20 revenues exceeded our forecast by around S$50mn. This is around ½ month of incremental revenue in 1Q20. We are assuming a similar incremental rise in 2Q20. Therefore, we are raising our forecast for FY20e by around S$100mn. Our TP is raised to S$1.58 as we peg the company to historical average of 25x PE.
Worth noting that FY20e earnings will in effect have two one-offs – the pantry loading and increase in home dining by households, plus the government grants expected in 2Q20. We have not incorporated job support grant into our earnings.
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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.
