Results at a glance
+ Gross margins still healthy. 4Q18 gross margin was 27.1%. This is shy of the high of 27.5% in 4Q17. Margin benefited from a higher mix of fresh products.
+ Record store openings. In 2018, SSG opened 10 new stores. This is the highest on record. There was less clarity on new stores opening for 2019 due to the release of fewer shops by the authorities.
– Same-store sales a worry. SSG same-store sales shrunk 2.7% in 4Q18. This is the largest contraction in more than two years.
– Longer to break-even. The break-even period for new stores will be longer. Competition from surrounding supermarkets is intensifying.
We expect three drivers for revenue growth next year:
1) The 10 new stores rolled out in 2018 (or 23% jump in store footprint to 496,200 sft);
2) Reduced base effect and drag from the two large store closures in 2017 (i.e. Verge and Woodlands);
3) Rising revenue per feet of the stores (+3.4% to S$1,971 psft in 2018).
The downside risk to our forecast will be the drag on same-store sales which will be dependent on economic condition and competition.
Maintain Accumulate with TP at S$1.30 (previously S$1.13). Our TP is based on an estimated 25x PE multiple. The company is expanding stores, increasing market share, expanding margins and enjoys a 25% ROE business with a S$87mn net cash balance sheet.