Sheng Siong

Sheng Siong: JP Morgan has unrated note on Co. House hosted mgt team and note that Co. plans to continue increasing the number of stores to enhance economies of scale and capitalize on its newly added logistics infrastructure. Mgt targets to increase the number of stores to over 40, which it thinks the domestic market is still capable of absorbing.

Fresh produce account for about 30% of the group revenue where GP margin may be as high as 30-32% (FY10 group: 22%). Co. sees potential to step up its housebrand product offerings from the current 300 products to c.2,000 products. Housebrands generally give 5- 10ppt higher GP margin than the third-party brands. Currently, about 5% of the group rev is derived from housebrands.

Its new warehouse at Mandai Link also means it is able to perform greater vol of bulk breaking for its suppliers, from which the company receives a 3.5-5% rebate on those goods. Stock currently trades at FY10 P/E of 18.9x against FY08- FY10 recurring EPS CAGR of 27%. Post IPO, the Co targets up to 90% payout ratio which translates to c.4.8% div yield, based on FY10 recurring earnings. Stock has outperformed 48% since IPO on 17 Aug11.