Sheng Siong Group Ltd – More stores and margin expansion

 

 

• 9M24 revenue met our expectations, but PATMI exceeded at 75%/79% respectively of our FY24e forecast. Progressive wage reimbursement and gross margins were higher than expected. Gross margin was a record 31.3% in 3Q24 from higher fresh product contribution and margins.
  
  
  
• In 3Q24, Sheng Siong opened two new stores in Singapore, bringing the total to 73 (or +1.4% expansion in space). Another new store opened in October, and Toa Payoh store acquisition is pending completion by the end of this year. Furthermore, five new stores are waiting for their tender results from HDB.
  
  
  
• We raised our FY24e forecast by 5% to S$145.8mn. Our ACCUMULATE recommendation is maintained, and the target price has increased from S$1.66 to S$1.74, based on a historical PE of 18x. Sheng Siong will at least open five new stores in FY24. This will almost triple the average of two new stores per year over the past three years.  New stores will provide at least 6% points of revenue growth next year. The unknown has been sluggish in same-store sales of around 2%, which includes the recent GST hike.

Sheng Siong Group Ltd – New stores start to accelerate

• 1H24 revenue and PATMI were within expectations at 49%/50% of our FY24e forecast. Revenue only grew 1.2% YoY in 2Q24. We estimate same-store sales sales contracted in 2Q24 by around 2% points. Gross margins at a new record of 30.9%.
  
• In 1H24, there were two new HDB stores opened. Another three new stores will be opening in 2H24 with three more pending results of the tender. In addition, seven more tenders are expected to be opened in 2H24. Some of the tenders included several competitor supermarkets closing down stores.
  
• We maintain our FY24e forecast and target price of S$1.66.  Our valuations are based on historical PE of 18x. We forecasted a total of eight new stores in FY24e and FY25e. There is upside to our forecast as more tenders open up. Sheng Siong will face slower growth this year due to a lack of new stores of only three over the past twelve months. Gross margins continue rising to new record levels.

Suntec REIT – Resilient Singapore assets and improving overseas outlook

 

 

• Gross revenue for 1H24 is in line with expectations, inching up by 1.2% to S$226.9mn due to the strong performance of Singapore assets (Retail rental reversion: +20.8%, Office: +9.7%) while overseas assets faced pressure (Australia revenue: -6.4%, UK: -16.1%).
   
   
• NPI increased by 1.5% to S$151mn, forming 48% of our FY24e estimates. DPU plummeted by 12.5% in the absence of the 0.398 cents capital top-up, with 1H24 DPU standing at 3.042 cents, which is 49% of our full-year forecast.
   
   
• SUN continues to demonstrate the capability of monetizing its assets as it divested S$31.5mn of strata units at 27% above book value and has put another 12.3k sqft for sale at c.S$41.8mn. With the strengthened cash position and the possible uplift on MAS’s regulation (ICR lowered from 2.5x to 1.5x), SUN would soon improve its balance sheet, which has been one of the main drags on its share performance. We reiterate our BUY recommendation with an unchanged DDM-TP of S$1.41 and FY24e-25e DPU of 6.2 to 7.5 cents.

Oiltek International Ltd - Riding major capex cycles

 

• The order book for Oiltek has been growing at a 50% CAGR over the past four years.
  FY24e is poised to be a fifth straight year of record orders. Oiltek secured new orders
  last week, which boosted its order book by around 30%, currently RM400mn or two
  times FY23 revenue.

• FY23 net profit jumped 51% to RM19.1mn on the back of strong order wins of RM322mn
  (FY22: RM196mn). We believe the company is riding multiple capex cycles. These
  include growth in biodiesel capacity in Malaysia and Indonesia, higher value-added
  products downstream, and expansion of customer base in Africa and Latin America. The
  largest growth opportunity will be the increasing use of sustainable aviation fuel oil
  using palm oil effluents in SE Asia.

• Oiltek has an enviable 31% ROE business that is asset-light and backed by net cash of
  RM132mn (~70% market cap). Its high returns stem from selling proprietary know-how
  and successfully designing, operating, and commissioning customer plants with a 45-
  year track record of project completions. We initiate coverage with a target price of
  S$0.70, or 15x PE FY24e. There are no direct comparables. We peg Oiltek at a discount
  to the engineering sector, which trades at 24x forward PE. FY24e EV/EBITDA is 1x.