Sales growth has been limited without new stores
4Q14 sales rose 4.7% yoy, which was slightly lower than the growth experienced in 1H14 (~6%), as additional revenue from longer operating hours was no longer a contributing factor since Sheng Siong started this initiative in 4Q13. Overall, FY14 sales increased by 5.6% yoy, with same-store sales contributing 3.3%. The eight new stores which were opened in FY12 would be entering their third year of operation, and growth is expected to normalise. This reaffirms our view that growth has to come from new stores. With two new stores added recently, coupled with a new segment in integrated dormitories, we remain optimistic on store growth.
Gross margins are here to stay
FY14 gross margins improved to 24.2% (FY13: 23.0%; FY12: 22.1%). This was driven by 1) economies of scale and lower input costs from its distribution centre, 2) a better sales mix, and 3) stable selling prices. We think these are normalised levels. Going forward, the deferment of planned increases in foreign worker levies for one year announced at this year’s Budget, together with savings in utility charges from lower oil prices could provide positive surprises for the group’s margins.
Dividend payout policy maintained at 90%
We expect the China JV to begin operations in 2H15 at the earliest, in view of the pending approvals from the relevant Chinese authorities. Sheng Siong remains in a net cash position of S$130m. FY14 DPS was 3 Scts, representing a yield of 4.1% and a payout ratio of 91%.