Wednesday, February 24, 2016

Sheng Siong Group - 4Q15 first take: earnings beat on tax refund

Another strong quarter 
●  Sheng Siong reported another strong quarter (net profit of S$14.6m, +23.9% yoy) on the back of improved gross margins (4Q15: 25.0%; FY14: 24.2%) and higher other income. There was a S$1m net tax refund in 4Q which further lifted an already strong set of results. FY15 net profit (S$56.8m, +19.3% yoy) formed 102% of our and consensus forecasts.   

Revenue growth mostly coming from new stores
●  New stores contributed positively but were especially let down by weak same store sales growth (SSSG) in 4Q. 4Q SSSG contracted 1.7% (9M SSSG +1.4%), which comes as a big negative surprise even amidst a weak retail climate. Overall, FY15 sales grew 5.3% yoy, made up by new stores (4.6%) and a mere 0.7% from SSSG.
●  Management cited renovation works at a sizeable Clementi store (28k sf, 6.5% of end-15 total GFA) in 4Q15 as the main culprit for the contracting SSSG. We are hopeful that the decline is a blip and not the start of a negative trend, especially given Sheng Siong’s position as a budget retailer which should be beneficial in a weak macro environment.

Riding on its new store growth momentum
●  The group just secured another store (3.5k sf) in Circuit Road. But the bigger surprise is the Yishun J9 store (18.6k sf), which the group now expects to start operating from 2Q16 instead of mid-2017 as originally planned after TOP was obtained earlier than expected.
●  Including the two latest new store announcements, this brings total new stores to eight since Dec 14. Recall that the group added one store in Dec 14 and five throughout 2015. In total, these new stores add ~53k sf of additional GFA (a 13% increase in total GFA).

Strong net cash + little capex + cash generative = high dividends
●  We continue to like the stock’s high dividends (4% yield), which we think are sustainable given its strong operating cashflow business. The company has net cash of S$126m as at end-FY15 and the biggest remaining capex is S$15m for Yishun J9. 

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