Sheng Siong

Sheng Siong: OCBC downgrades to Hold with $0.55 TP. Note that despite having no significant developments since house last update report issued on 10 Dec 2012, Sheng Siong Group’s (SSG) share price has soared by more than 25%. View this amazing appreciation as a result of the street finally factoring in SSG’s successful store expansion phase last year, and is playing catch-up by raising its expectations for the company ahead of its FY12 results release. Add that SSG closed out FY12 with 33 stores (Gross Floor Area: +50K sf to 400K sf). SSG is ontrack to at least match its best net-profit performance back in FY10, which included a $9.4m gain from investments. Although its 4Q12 will experience a decline due to seasonal weakness and year-end stock count, do not expect a stock count writeoff of last year’s magnitude (a $1.7m inventory write-off reduced gross profit margins by 1.2ppt). Even after fine-tuning DCF model, fair value estimate only increases slightly to $0.58 from $0.55 previously. Therefore, house downgrade SSG to HOLD on valuation grounds. While house continue to favour the co’s management and its growth prospects, its recent price action has been far too exuberant and unsustainable (TTM PE of 33x). Recommend investors take some profit around current levels, and wait patiently to re-enter at lower levels around $0.55.