Sheng Siong

Supermarket chain, Sheng Siong reported 1Q16 results which met street expectations, with net profit of $16.4m (+16.8% y/y).

Revenue grew 5.1% to $208.5m on the back of sales from five new stores, which was partially offset by a 0.5% contraction in comparable same-store sales.

The group cited tepid Chinese New Year demand as well as ongoing renovation in the vicinity of its Loyang store, a fall in liquor sales in its Geylang store and a weaker ringgit affecting its Woodlands store as causes for the dip in same-store sales.

Excluding the Woodlands store, comparable same-store sales would have registered a marginal growth of 0.1%.

Gross margin held steady at 24.5%. Bottomline was also buttressed by government grants of $2.3m (+175.6%)

Beyond the quarter, Sheng Siong opened a new outlet at Circuit Road on 17 Apr with three new stores slated to come on stream in 2Q16. Together, they will add about 25,000 sf to its current portfolio of 434,500 sf of retail space.

Moving forward, management is wary of rising food prices due to the effect of the El Nino weather pattern crimping supplies. In addition, foreign labour restrictions and upward pressures on manpower cost are expected to continue to persist.

Despite this, the market continues to price Sheng Siong at a premium based on its defensive nature as well as high dividend payout ratio (FY15: 93%). The stock is currently trading at 22.13x forward P/E.

The street is very bullish on the counter with 9 straight Buy ratings and a consensus TP of $0.98.