Store opening could reaccelerate in FY24F
- 4Q23 net profit of S$34m (+1% yoy) was in line. Higher operating expenses was offset by continued GPM expansion and higher interest income.
- Store opening likely stronger in FY24F — SSG secured 2 new leases in early-2024; HDB tender pipeline is robust (10 stores in FY24F; double yoy).
- Reiterate Add. We like SSG’s ability to deftly navigate business challenges and view it as a defensive play amid macro uncertainties in FY24F.
4Q23: Another set of resilient earnings
Sheng Siong Group’s (SSG) 4Q23 net profit of S$34m (+1% yoy) was in line, with FY23 net profit forming 100%/99% of our/Bloomberg consensus’ forecasts. 4Q23 revenue of S$331m (+1% yoy) was slightly below Bloomberg consensus’ expectation — management attributed this to impact from: 1) more outbound travel during the holiday season, and 2) delayed festive effect, with Chinese New Year falling in Feb 2024 compared with Jan in the preceding year. 4Q23 net margin remained flattish yoy, as higher operating expenses were offset by continued GPM expansion (+1.1% pts yoy) and higher interest income.
Store opening likely to reaccelerate in FY24F
FY23 had been a slow year in terms of new store openings for SSG (+2 in Singapore), mainly due to a slower pace of tendering exercise for commercial units by the Housing Development Board (HDB). Out of the five units released for tendering in CY23, SSG secured three units, including two that were only awarded in early-2024. Its supply pipeline is robust for CY24F, with HDB having released four supermarket sites for tendering in Jan 2024, with six more slated for the remainder of the year (according to HDB). We forecast four new store openings in Singapore and one store addition in China for SSG in FY24F.
Deftly navigating business challenges
We forecast 3% EPS growth for FY24F riding on its store count expansion. FY24F revenue outlook remains strong, in our view, buoyed by consumers cutting back on non-essential spending and shifting spend towards groceries and fresh food, coupled with supportive government measures including targeted cash handouts. While competition remains keen in Singapore’s supermarket industry, we think SSG’s FY23 GPM expansion of +0.6% pt yoy is a testament to its ability to navigate this challenge. SSG continues to see room to improve GPM via sales mix optimisation and margin uplift in the non-fresh category. We think opex pressure could ease in FY24F as SSG has renewed its electricity contract in Oct 2023 for FY24F at lower tariffs yoy and continues to roll out more self-checkout terminals at its stores to improve labour productivity amid rising wages.
Reiterate Add
Reiterate Add as we continue to like SSG as a defensive play amid the current backdrop of elevated inflation and economic slowdown. Our TP rises to S$1.88 as we roll over our valuation base year to FY25F, still based on 19.6x P/E (0.5 s.d. below 5-year historical mean). Re-rating catalysts: increase in HDB new store tender counts. Downside risks: weaker sales due to contracting grocery demand, and margin erosion from heightened industry competition.
