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MONEY TALK
SHENG SIONG GROUP (SSG SP)
Key Takeaways From 3Q14 Results Briefing
VALUATION
Sheng Siong Group (SSG) is currently trading at consensus 2014F and 2015F PE
of 19.0x and 17.9x respectively. This is in comparison with Dairy Farm International
Holding’s of 25.4x and 22.5x.
Consensus target price of S$0.77 represents an upside of 19.4%. Expected
dividend yields for 2014-2015 within the range of 4.6-4.8%.
INVESTMENT HIGHLIGHTS
SSG 9M2014 earnings in line with consensus as it represents 76.2% of the total
expected 2014 net profit. The group’s quarterly net profit grew 15.4% yoy to
S$12.2mn. Management indicated that revenue growth is in line with end-14
guidance of 5% driven by SSG same stores sales growth. The group’s quarterly
revenue increased by 4.8% yoy, of which 3.4% was contributed from comparable
same store sales and 1.4% from new stores.
Margins have improved but continue to be under input cost pressures. Driven
mainly from competitive buying and bulk purchasing, SSG’s gross margin increased
1ppt yoy. Margins however are under pressure from food inflation and increasing
labor costs. Food inflation for 9M14 was 2.9% with seafood, dairy products,
vegetables and fruits exhibiting the largest increase. Management has indicated that
cost pressures, particularly on manpower due to the tightening over the availability of
foreign workers, are likely to continue. Due to the pressure on margins, we do not
expect SSG to adjust prices for their goods and services downwards significantly.
SSG continues to be selective on store expansion plans and adopts a cautious
approach in investing in new stores as its competitors are consolidating poor
performing operating outlets. There were no new stores opened in 2013 and the first
nine months of 2014. However, management has indicated the intentions to
purchase retail areas in favourable locations if leasing is not available and has issued
120m new shares raising S$79.0m for such growth plans. A new store in the Penjuru
area of approximately 4000sf is expected to be operational by mid-Nov 2014. We
note that cash balances as of 9M2014 increased 66.1% yoy and the group has not
undertaken any debt.
Exploring into the E-commerce business. Management has shared their growing
interest to develop business in this aspect. However, progress is still in its pilot phase
and as we have previously indicated, online sales accounts for less than 1% of total
sales.
KEY FINANCIALS
Year to 31 Dec (S$m) 2011 2012 2013 3Q 2013 3Q 2014
Net Turnover 578.4 637.3 687.4 177.8 186.4
Gross Profit 127.8 140.9 158.2 41.2 45.1
EBITDA 39.4 45.6 55.4 14.9 17.5
Operating profit 33.3 37.2 45.3 12.3 14.7
Net profit 27.3 41.7 38.9 10.6 12.2
EPS (cent) 2.21 3.01 2.81 0.76 0.81
P/E (X) 29.4 21.6 23.1 - -
P/B (X) 6.1 5.9 6.0 - -
Dividend yield (%) 2.7 4.2 4.0 - -
Net margin (%) 4.7 6.5 5.7 6.0 6.6
Net debt/(cash) to equity (%) (82.3) (79.4) (66.6) - -
Interest cover (x) 405.7 n.a. n.a. n.a n.a
ROE (%) 25.7 27.8 25.8 - -
Source: Sheng Siong, Bloomberg, UOB Kay Hian
MONEY TALK
SHENG SIONG GROUP (SSG SP)
Key Takeaways From 3Q14 Results Briefing
VALUATION
Sheng Siong Group (SSG) is currently trading at consensus 2014F and 2015F PE
of 19.0x and 17.9x respectively. This is in comparison with Dairy Farm International
Holding’s of 25.4x and 22.5x.
Consensus target price of S$0.77 represents an upside of 19.4%. Expected
dividend yields for 2014-2015 within the range of 4.6-4.8%.
INVESTMENT HIGHLIGHTS
SSG 9M2014 earnings in line with consensus as it represents 76.2% of the total
expected 2014 net profit. The group’s quarterly net profit grew 15.4% yoy to
S$12.2mn. Management indicated that revenue growth is in line with end-14
guidance of 5% driven by SSG same stores sales growth. The group’s quarterly
revenue increased by 4.8% yoy, of which 3.4% was contributed from comparable
same store sales and 1.4% from new stores.
Margins have improved but continue to be under input cost pressures. Driven
mainly from competitive buying and bulk purchasing, SSG’s gross margin increased
1ppt yoy. Margins however are under pressure from food inflation and increasing
labor costs. Food inflation for 9M14 was 2.9% with seafood, dairy products,
vegetables and fruits exhibiting the largest increase. Management has indicated that
cost pressures, particularly on manpower due to the tightening over the availability of
foreign workers, are likely to continue. Due to the pressure on margins, we do not
expect SSG to adjust prices for their goods and services downwards significantly.
SSG continues to be selective on store expansion plans and adopts a cautious
approach in investing in new stores as its competitors are consolidating poor
performing operating outlets. There were no new stores opened in 2013 and the first
nine months of 2014. However, management has indicated the intentions to
purchase retail areas in favourable locations if leasing is not available and has issued
120m new shares raising S$79.0m for such growth plans. A new store in the Penjuru
area of approximately 4000sf is expected to be operational by mid-Nov 2014. We
note that cash balances as of 9M2014 increased 66.1% yoy and the group has not
undertaken any debt.
Exploring into the E-commerce business. Management has shared their growing
interest to develop business in this aspect. However, progress is still in its pilot phase
and as we have previously indicated, online sales accounts for less than 1% of total
sales.
KEY FINANCIALS
Year to 31 Dec (S$m) 2011 2012 2013 3Q 2013 3Q 2014
Net Turnover 578.4 637.3 687.4 177.8 186.4
Gross Profit 127.8 140.9 158.2 41.2 45.1
EBITDA 39.4 45.6 55.4 14.9 17.5
Operating profit 33.3 37.2 45.3 12.3 14.7
Net profit 27.3 41.7 38.9 10.6 12.2
EPS (cent) 2.21 3.01 2.81 0.76 0.81
P/E (X) 29.4 21.6 23.1 - -
P/B (X) 6.1 5.9 6.0 - -
Dividend yield (%) 2.7 4.2 4.0 - -
Net margin (%) 4.7 6.5 5.7 6.0 6.6
Net debt/(cash) to equity (%) (82.3) (79.4) (66.6) - -
Interest cover (x) 405.7 n.a. n.a. n.a n.a
ROE (%) 25.7 27.8 25.8 - -
Source: Sheng Siong, Bloomberg, UOB Kay Hian
