A solid year, but tough comps ahead
? SSG’s 4Q21 net profit of S$32.5m (-5.3% qoq, +1.4% yoy) was slightly above expectations. Key positive was continued uptrend in GPM to a record 29.4%.
? We see tough comps for FY22F, with elevated demand set to taper as Singapore eases Covid-19 restrictions in the coming months.
? Store openings could partially offset the impact – we note that SSG secured 3 new leases in 4Q21 after a 1.5-year hiatus. Reiterate Hold.
4Q21: Another quarter of record GPM
Sheng Siong Group (SSG) reported 4Q21 net profit of S$32.5m (-5.3% qoq, +1.4% yoy), as elevated demand tapered off slightly in Dec with easing of mobility restrictions. FY21 net profit of S$132.8m (-4.2% yoy) came in slightly above expectations at 102%/103% of our/Bloomberg consensus forecasts. Total DPS for FY21 was 6.2Scts (70% dividend payout), implying a dividend yield of c.4.1%. We believe key positive was another record GPM of 29.4% (+0.4% pt qoq, +2.1% pts yoy), supported by higher sales mix of fresh
food and private label products, which have higher margin profiles.
Elevated demand to taper with easing restrictions
Despite the recent rise in Covid-19 cases, the Singapore government remains committed to “living with Covid-19”. Finance Minister Lawrence Wong said the government is aiming to take further significant steps to ease Covid-19 restrictions after passing the peak of current wave, which can happen in the coming weeks. We expect elevated demand to taper in the coming months, and forecast SSSG of -6.5% for FY22F. But with hybrid work arrangements increasingly prevalent and limited reopening of the Singapore-Johor Bahru land border currently, we do not expect SSG’s sales productivity to return to pre-Covid-19 levels in the near term.
Store additions to resume in FY22F
After a 1.5-year hiatus, SSG successfully secured three new store leases in 4Q21. One store already commenced operations in Dec 2021, while the other two stores are expected to open in 1H22F. Along with construction activity recovery, we expect more store leases to be released for bidding by Housing & Development Board (HDB) this year. We currently pencil in three new store openings for SSG in FY22F, increasing total retail area by 25k sq ft (+4.3% yoy).
Reiterate Hold
We retain Hold, as we see tough comps for FY22F, and forecast net profit to decline by 16.8%. We raise our FY22-23F EPS forecasts by 5.4%-6.3% to account for faster store count expansion and higher GPM assumptions. Our TP is raised to S$1.60 as we roll forward our valuation base year, and is now based on 21x FY23F P/E (10-year historical mean). Upside risks include faster-than-expected store openings and sustained margin uplift. Downside risks include intensifying competition from online grocery shopping
platforms.