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Laudable 1Q15 PATMI of SGD14.1m. Sheng Siong’s 1Q15 PATMI grew 12.2% YoY as a result of a spike in rental income from tenants at its new Tampines premises. Its gross margin also rose 60bps YoY, with greater cost savings from the distribution centre. While food inflation moderated to about 2.1% in 1Q15, we think Sheng Siong may continue to benefit from lower raw material costs due to the depreciating MYR.
Lim Hock Chee, CEO of Sheng Siong Group. NextInsight file photo. Offsetting subdued same-store sales growth (SSSG) with more supermarkets. Sheng Siong’s 1Q15 revenue grew by 4.6%, of which only 2.9ppts was contributed by SSSG. Management said that demand remained tepid post Chinese New Year. Still, we are optimistic that it will be able to meet our full-year projections, as the group has secured another two leases with the Housing and Development Board (HDB) at Bukit Panjang and Punggol. Additionally, Sheng Siong is the highest bidder for a 3,200-sq ft store space at Pasir Ris. As it has exceeded our forecast of opening three new supermarkets for FY15, we lift our estimate of new supermarket openings this year to six from three previously, as rental rates remain conducive for expansion.
Progress on joint-venture (JV) with LuChen Group. The JV is now applying for licenses with the China authorities. Management expects its operation in China to commence in 2H15. Its current investment in the JV amounts to USD6m. Although we are positive on this development, we think that the financial impact will not be significant in the near term.
Reiterate BUY, with a higher TP of TP SGD0.95 (from SGD0.83). We continue to like Sheng Siong for its ability to deliver good quality growth. We incorporated our new store expansion forecast and higher rental income into our figures, and adjust our earnings by 5.7-11% over FY15F- 17F. Our DCF-derived TP rises to SGD0.95, implying 25x FY15F P/E.
Full report here.
