Sheng Siong

Sheng Siong: Announced a good set of 3Q14 results which was largely in-line, with net profit coming in at $10.6m (+8% y/y, +25% q/q) while revenue was at $177.8m (+5% y/y, +11% q/q) The result brings 9M13 net profit to $29.6m (+19%). The strong top-line was largely because of increased contributions from new stores of $12.6m, although this was partially offset by a contraction in comparable same store sales of $4.5m due to declining sales in the Group’s matured stores in older housing estates. Despite the industry remaining competitive, 3Q13 gross profit margin of 23.2% was 0.3 ppt higher y/y, mainly because of slightly lower input costs brought about by savings derived from the distribution centre. On a q/q basis, gross margins remained stable. Going forward, Sheng Siong notes that the weak external environment has affected retail spending in Singapore which remained weak. The industry is expected to remain competitive and while the Group aims to open new outlets in areas where it does not have a presence, it expects the competitors to compete with the Group for new retail space. Cost pressures, particularly on food and manpower is likely to continue. To overcome the challenges, the group remains focused on increasing its retail presence as well as enhancing its product sales mix and improving on its processes to achieve cost savings. At current price, Sheng Siong trades at 22.0x annualized FY14E P/E versus its larger, regional peer Dairy Farm at 30.1x forward P/E. Latest broker ratings as follows: CIMB maintains O/p with $0.77 TP OCBC maintains Buy with $0.78 TP OSKDMG maintains Buy with $0.74 TP