SINGAPORE (May 4): OCBC Investment Research is reiterating its “buy” recommendation on Sheng Siong Group (SSG) with a fair value estimate of $1.15, after the supermarket chain operator’s recent set of 1Q17 results came in line with the research house’s expectations.
(See also: Sheng Siong 1Q earnings up 4.4% to $17.1 mil on higher revenue from new stores)
In a Thursday report, lead analyst Jodie Foo notes steady margins and decent core operating profit growth for the group over the last quarter, and expects the factors behind gross profit margin (GPM) to remain supportive of keeping within a range of 25-26% for the full year.
“As mentioned in previous reports, we keep in mind that SSG’s variable compensation structure can also help to control costs, hence despite the increase in headcount for new stores last year, admin expenses as a percentage of sales were lower at 15.8% vs. 16.1% in 1Q16,” he adds.
Looking ahead, Foo believes the eventual impact of store closures for The Verge and Woodlands, which are to occur in June and August this year respectively, are due to be seen in 3Q17 onwards.
He also notes that competition remains keen in the industry as new stores are expected to be opened this year by SSG’s peers.
See also: RHB initiates coverage on CSE Global with ‘buy’ call with TP of 58 cents
“Against this backdrop, areas that would likely continue to help SSG include the new stores opened in 2016 (includes Yishun Junction 9), the larger Block 506 Tampines store by June, as well as any potential renovation for existing stores. In addition, opportunities for opening new stores still exist,” Foo concludes.
As at 12.01pm, shares of Sheng Siong are trading 1 cent higher at $1.
