Better 2Q22F ahead on higher footfall
? 1Q22 core net profit fell 14.6% yoy to RM11.4m, below expectations due to
weaker-than-expected sales and narrower margin from higher opex.
? Senheng should post stronger qoq results in 2Q22F, driven by: i) higher
footfall, ii) more new/upgraded stores, and iii) better product mix.
? Reiterate Add with a lower TP of RM0.88 (17.4x CY23F P/E).
1Q22 core net profit declined 14.6% yoy, below our expectations
Senheng New Retail Bhd’s (Senheng) 1Q22 revenue fell 1.9% yoy as we believe sales
were affected by lower consumer footfall due to increased Omicron cases in Feb 22. Note
that, during 1Q21, the group experienced a surge in demand in its digital gadget categories,
such as mobile phones and computer laptops, given the work-from-home (WFH) and
study-from-home (SFH) trends due to movement restrictions. Given this, coupled with
increases in operating and administrative expenses (+8.6% yoy) amidst its expansion
strategies and including listing expenses, 1Q22 core net profit (CNP) waned 14.6% yoy to
RM11.4m, below at 14.8% of our FY22 estimate. Nonetheless, 1Q22 GP margin improved
to 21.1% (+0.6% pts yoy), which could have been driven by higher sales contribution from
its exclusive and in-house brands (higher margins), in our view.
Weaker qoq results due to seasonality factors
On a qoq basis, 1Q22 revenue and CNP tumbled 19.5% and 58.5%, respectively. This was
owing to: i) seasonally stronger 4Q on various mega year-end marketing campaigns (e.g.
Members’ Day sale, 11.11 sale, 12.12 sale and Christmas festive sales), ii) the impact of
a surge in Omicron cases in Feb 22, leading to lower consumer footfall and fewer operating
days during the quarter, and iii) higher operating and administrative costs (+10.8% qoq)
amidst expansion/enhancements of stores and listing fees in 1Q22. No dividend was
declared during the quarter, as expected.
Better quarters ahead on higher footfall and store expansion plan
We expect Senheng to post stronger qoq results in 2Q22F from higher revenue and margin
expansion, premised on: i) recovery in retail footfall post economic reopening as Omicron
cases subside, ii) expansion strategy to launch new/upgraded stores, which could lead to
higher per-store sales, and iii) more favourable margin mix from its aggressive plan to grow
its in-house and exclusive products (which garner higher margins). Senheng expects to
launch 6 new/upgraded stores in 2Q22.
Reiterate Add, with a lower TP of RM0.88
We cut our FY22-24F EPS to account for lower sales volume and higher operating
expenses. We reiterate Add with TP down to RM0.88, still pegged to 17.4x CY23F P/E, a
20% discount to CGS-CIMB’s consumer discretionary sector’s 5-year mean P/E of 21.8x.
We continue to like Senheng for its: i) market leading position in Malaysia’s retail E&E
sector by revenue, ii) strong retail presence nationwide, and iii) sustained demand for
consumer E&E products (Senheng has wider product offerings vs. peers).