SINGAPORE (Aug 1): Sheng Siong is opting to stay prudent and maintain a healthy balance sheet but OCBC Investment Research does not rule out the possibility of the group purchasing stores in ideal locations.
“All considered, we raise our cost of equity to 6.4%, which brings our fair value down to $1.04 from $1.15 previously with “buy” rating unchanged,” says analyst Jodie Foo in a Monday report.
Sheng Siong’s 2Q17 results came in within expectations as revenue grew 6.8% y-o-y to $201.5 million and PATMI was up 6.3% to $16.1 million. 1H17 revenue of $418.6 million and PATMI of $33.3 million formed 51%-52% of full year estimates.
Revenue in 2Q was driven by new stores, same store sales (SSSG) and from the Loyang Point and The Verge stores. If the contraction from the 41,000 sf Woodlands store is excluded, SSSG would have been 1.7%.
The 45,000 sf Verge store had closed in the third week of June and the 41,500 sf Woodlands store’s closure is extended from Aug to Oct, while a new 4,000 sf store at Bukit Panjang as well as a new 12,000 sf store at Woodlands St 12 will open in Sept and Oct, respectively.
“Looking ahead, the group will need new stores particularly in key growth and untapped areas to maintain topline growth,” says Foo, adding there are 12 HDB supermarket locations up for bidding in the next six months.
Gross profit margin was higher at 26.6% vs 26.1% due to efficiency gains from the central distribution centre, higher level of suppliers’ rebates and better sales mix.
“We expect these drivers to be sustainable for gross profit margin to be maintained within a range of 25-26% for full year. We also reiterate that SSG’s variable compensation structure can also help to control costs,” adds Foo.
As at 1.35pm, Sheng Siong shares are down 1 cent at 93 cents.
