Key strategies to drive higher sales growth
? We remain upbeat on Senheng’s FY22F earnings prospects post briefing as
sales are expected to be strong in coming quarters on economic reopening.
? While opex may remain elevated on ongoing expansion, we believe it would
be offset by higher sales, particularly from its home appliances segment.
? Reiterate Add with a lower TP of RM0.80 (17.4x CY23F P/E).
Better 1Q22 results after stripping out one-off RM1.7m listing fee
We revise our 1Q22 results review (Fig 1) for Senheng New Retail Bhd (Senheng) post its
results briefing, as we strip out the RM1.7m listing expenses incurred during the quarter,
which are one-off in nature. As a result, 1Q22 core net profit (CNP) only dipped 1.8% yoy
to RM13.1m, albeit still below our earlier expectation, accounting for 17% of our full-year
forecast. However, we are cognisant that 1Q is a seasonally weaker quarter; the group is
confident of achieving stronger qoq results for the rest of FY22F, backed by higher same
store sales growth (SSSG; 1Q22: +3%).
Higher opex and input cost to be offset by higher sales growth…
Excluding the listing fee, the rise in 1Q22 operating and administrative expenses (opex)
was 5.9% yoy, which Senheng attributed to increases in both depreciation (+6.3% yoy)
and staff costs, owing to the two new upgraded stores in 1Q22. In our view, opex should
remain elevated given its plan for 21 new/upgraded stores in FY22F. However, Senheng
believes this could be offset by higher sales volume, with a projected c.20% yoy growth in
2Q22 premised on sales momentum in Apr/May 2022, likely to be propelled by its home
appliances and audio segments. GP margin is also expected to remain steady from highermargin in-house and exclusive brands’ sales contributions.
…to be led by home appliances via ongoing multi-prong strategies
We expect Senheng’s ongoing strategies such as introducing more innovative payment
options [i.e. easy payment plan and buy now, pay later (BNPL)] and ongoing store
expansion/upgrades with more attractive in-store designs to drive sales of its bigger-ticket
electrical appliances and audio items. We also believe the home appliances sales will be
driven by two ongoing e-Rebate campaigns by the Malaysian government in 2022: i) SAVE
3.0 (Fig 8), and ii) Malaysian Family Flood Relief Program, that grant up to RM400, and a
one-off RM500 voucher, respectively, for electrical appliance purchases. We foresee these
schemes helping to spur demand for Senheng’s home appliance and audio products.
Reiterate Add, with a lower TP of RM0.80
As we cut our FY23-24F EPS forecasts to account for higher input costs, our TP is lowered
to RM0.80 (17.4x CY23F P/E, a 20% discount to CGS-CIMB’s consumer discretionary
sector’s 5-year mean P/E of 21.8x). Nonetheless, we reiterate our Add call as we like
Senheng for its: i) market leading position in Malaysia’s retail E&E sector by revenue, ii)
strong retail presence nationwide with a loyal customer base of 3.37m PlusOne members,
and iii) wider product offerings (third party, own, exclusive brands) vs. peers.