Good quarter but tougher times ahead
? 1Q22 NP of S$35.1m (+7.9% qoq, +13.9% yoy) slightly above expectations.
Key positive was stronger topline due to Omicron wave and higher inflation.
? Comparable store sales in coming months could be hurt by elevated demand
tapering off with economic reopening; partially cushioned by rising inflation.
? SSG remains steadfast in its store opening plan, with a target of 3-5 new
stores p.a. in the medium term. Reiterate Hold.
1Q22 boosted by Omicron wave and rising inflation
Sheng Siong (SSG) announced 1Q22 net profit of S$35.1m (+7.9% qoq, +13.9% yoy),
slightly above expectations at 31.8% of our and 30.1% of Bloomberg consensus FY22
forecasts (1Q is a seasonally stronger quarter due to Chinese New Year). Key positive
was a strong topline growth to S$358m (+5.3% qoq, +6.0% yoy), helped by the
emergence of the Omicron variant locally, as well as higher inflation. GPM declined 0.7%
pt yoy, mainly due to seasonality impact, but remained higher yoy (+1.1% pts) due to
favourable changes in product mix. Opex remained very well handled, with OPM
expanding both qoq and yoy.
Demand may taper in 2Q22F, impact cushioned by higher inflation
Looking into 2Q22F, we believe SSG’s comparable store sales could be negatively
impacted by elevated demand tapering off with the significant easing of social restrictions
locally starting Apr and land border reopening between Singapore and Malaysia. This
could be cushioned partially by rising inflation, which may cause downtrading among
consumers. We continue to forecast comparable store sales of -6.5% for FY22F (1Q22:
+4.7%), given the higher comparison base in 2Q/3Q (Singapore entered into Phase 2
Heightened Alert in mid-May 2021). In view of rising costs, SSG is diversifying its sources
of supply and working with suppliers to minimise disruptions to provide competitive
offerings to its customers; we expect GPM to be well handled and remain flattish yoy in
FY22F. OPM, however, could be negatively impacted due to weaker operating leverage.
Store additions to resume in FY22F
SSG is on track to open two more new stores in 2Q22F; we forecast SSG to increase its
total retail area by 25k sq ft this year (+4.3% yoy). We project that with the recovery in
construction activity, the Housing & Development Board (HDB) will release more store
leases for bidding in 2022F. SSG targets to open 3-5 new stores per year for the next 3-5
years, especially in housing estates where it does not have a presence. SSG’s China
operations are profitable, and it plans to further expand its presence in Kunming.
Reiterate Hold and TP of S$1.60
Reiterate Hold, we see tough comps for the quarters ahead with Singapore’s reopening,
and forecast FY22F net profit to decline 16.8%. Our TP is kept at S$1.60, still based on
21x CY23F P/E (10-year historical mean). Upside risks include faster-than-expected
store openings and resilient grocery spend despite economy reopening. Downside risks
include intensifying competition from online grocery shopping platforms.