Sheng Siong

[winston]

not vested

SHENG SIONG Q2 PROFIT UP 30.3%

Sheng Siong Group Ltd yesterday posted a 30.3% rise in net profit for the fiscal second quarter ended June 30, on higher profit margin.

With a 7.4% increase in turnover to S$171.56mil, gross profit rose 14.3% to S$42.32mil. Net profit rose to S$11.07mil, or 0.80 cents per
share. A 1.5 cent per share interim dividend, payable on Aug 29, has been declared.

The homegrown supermarket chain said although competition remained strong, selling prices were stable, but with a slight downward bias. Input prices continue to improve mainly because of savings derived from the Mandai Distribution Centre.

Gross margins improved to 24.7% in the reporting quarter, from 23.8% previously.

For the six months to end‐June, net profit rose 24.2% year on year to S$23.61mil on a 6.5% increase in turnover to S$361.26mil. These
were achieved despite the closure of the Chin Swee store for almost a month for a total makeover.

Purchases of property, plant and equipment amounting to S$9.2mil, consisted mainly of the progress payment of S$6.1mil for Junction 9
and S$1.0mil for the solar panel. The Junction 9 retail space in a HDB commercial complex under construction in Yishun, measures 19,000
sq m, and is expected to be ready by the middle of 2017.

CEO Lim Hock Chee said: "We remain on the lookout for new retail space opportunities, so as to reach out to our potential customers in
areas where we do not have a presence."

Source: AmFraser

[winston]

not vested

Sheng Siong (SSG SP) announced a proposed placement of up to 120,000,000 ordinary shares at the issue price of SGD0.67 per share which is a discount of 5.4% to the last closing price.

The placement shares represent approximately 8.7% of the company’s issued share capital.

The gross proceeds of approximately SGD80.4m would be used to finance the acquisition of retail spaces for expansion plans in Singapore.

The proceeds would give Sheng Siong sufficient cash to pay for its current commercial property at Tampines Central and potentially an additional property purchase in FY15 and FY16.

The company has also committed to a 90% dividend payout ratio for FY15 and FY16 which is in line with our expectation.

Source: DMG

[winston]

not vested

July, 24, 2014

2Q14 earnings jumped 30% y-o-y to SGD11.1m on higher sales growth since 3Q13 and significantly better margins.

As such, 1H14’s SGD23.6m earnings (+24% y-o-y) met 55% of consensus estimates.

Revenue was up 7% to SGD172m as same store sales growth turned around in 1Q14, reaching a record-high of 4.7%

This was achieved through longer operating hours, refurbishment of some stores and marketing initiatives.

2.7ppt of the growth is attributed to the ramping up of 8 new stores opened in 2012.

Gross margins have also been on an uptrend as the group see greater cost efficiencies leveraged from the Mandai Distribution Centre as well as rational industry competition, which kept prices stable.

This helped to mitigate against higher operating cost pressures arising from rental and wages.

On storecount growth, the group has purchased retail space in Tampines and Yishun which would be ready by FY15 and FY17 respectively.

We expect two new stores a year for FY15 and FY16 as upcoming commercial units become available for bidding.

We like management’s strong operational capabilities and relentless push for efficiency.

Maintain BUY, with DCF-derived TP of SGD0.74.

Source: DMG

[winston]

vested

Refuelling cash to shop for shops
SSG SP / SHEN.SI | ADD - Maintained | S$0.71 /TP S$0.73
Mkt.Cap:US$784.90m | Avg.Daily Vol:US$1.02m | Free Float:28.00%

Sheng Siong announced an S$80m share placement to fund site acquisitions for new store growth. The equity-raising will dilute FY15 EPS by 8.67%. The stock has taken a beating since the announcement and we revise down our target price to S$0.73, still based on 21.7x FY15 P/E (discount to Dairy Farm International), due to the dilution.

We maintain our Add rating only because the stock already tumbled.

We look forward to potential catalysts of
1) concrete store growth plans, and
2) more visibility on China expansion plans.

What Happened

Sheng Siong did a share placement yesterday (3 September 2014), issuing 120m shares at S$0.67/share, adding ~S$79m (net of fees) of capital and causing 8.7% dilution. Outstanding shares rise to 1,504m (previous: 1,384m. We trim our FY15 EPS by 8%.


What We Think

Our immediate reaction is a negative, since this creates immediate dilution without any foreseeable earnings upside. We see this as a replenishment of its cash pile.

1H14 ending net cash (S$95m) will dwindle down to ~$30m, after paying for Tampines (~S$65m). This placement takes the post-Tampines cash pile back to S$110m, giving them the means to bid for sites, if needed.

Sheng Siong still has to pay for J9 (~S$55m by 2017) in future. We expect the funds to be used for selective acquisition of new sites for growth, or sites on some of the existing outlets with expiring leases.

Sheng Siong will not be committing more funds into the China JV at this juncture. We view acquisition of existing sites as a defensive strategy to ensure that they can retain shop space in the face of competition. It will not boost earnings.

We see that strategy as a necessity but we are not too hot on it. We are more excited about new store growth, if it happens, since that will add to earnings. S$80m will probably buy it another 2 stores (~20k sq ft each), assuming capital values of ~S$2k/sq ft. Sheng Siong has 33 stores now.

Buying retail stores is an asset-heavy strategy that is equivalent to putting capital into hard assets that generate RoEs of 4-6%, vs. a business ROE of 25% ROE i.e. not good The question is whether it will be buy new or existing stores, management sounds like they do have new store targets.


What You Should Do

We maintain our Add rating only because share price has tumbled, reacting to the dilution. Our fully-diluted target price is revised to S$0.73 (from S$0.79), factoring in the effect of the placement.

Our grouse with Sheng Siong is that it did not have store growth to drive earnings. This placement is clearly in preparation of store growth and we will not be to negative, despite the dilution.

Previous "Sheng Siong Group" reports...
24/7/14 Co.Flash When the stars align (AD, S$0.66 /TP:0.79)
23/7/14 Co.Results Margin surprise from efficiency (AD, S$0.67 /TP:0.79)
25/4/14 Co.Results Squeezing blood from stone (AD, S$0.60 /TP:0.75)

Source: CIMB

[winston]

vested

Why Has Sheng Siong Group Ltd Fallen By 5.6% Today? by Stanley Lim

Supermarket retailer Sheng Siong Group Ltd (SGX: OV8) has fallen by as much as 5.6% to S$0.67 earlier in the morning. What has happened?

As it turns out, Sheng Siong had proposed a private placement at 2.21 am in the morning. Under the placement deal, Sheng Siong would be issuing 120 million new shares of itself at S$0.67 each through its placement agent, J.P. Morgan (SEA) Limited. The announcement likely came as a shock for the market there were no announcements made in the past few months which indicated that Sheng Siong might need to raise capital.

The current status

In fact, based on the company’s latest financials for the first half of 2014, the company is still in a net cash position (total cash minus total borrowings) of S$95.6 million as of 30 June 2014. The company had also just paid out a dividend of 1.5 Singapore cents per share to its shareholders on 29 August 2014. That equates to a capital outlay of roughly S$20 million.

What is happening with the private placement?

The company will raise a total of S$80.4 million from the exercise. The 120 million new shares represent about 8.7% of the company’s current share count of 1.38 billion. Management explained that the company will be using most of the proceeds to finance future expansion of its retail activities in Singapore.

Is the market right in disliking the deal?

From the drop in Sheng Siong’s share price today, it can be deduced that the market isn’t too enamoured with the deal. There are good reasons for the cynicism: The placement will reduce the net asset value per share of the company by 8% to 9.96 Singapore cents and at the same time, decrease its earnings per share by 7.8% to 2.59 Singapore cents. Current shareholders are left with a smaller slice of the economic benefits which accrue to the company over time.

From a capital allocation perspective, there are also kinks in Sheng Siong’s logic for issuing new shares. The company’s in a net-cash position, meaning it has substantial financial resources at its disposal – in such an instance, raising equity seems to be a much more expensive option as compared to debt, bearing in mind that we’re still currently in a low interest rate environment.

In addition, why did the company not reduce its dividend to shareholders if it’s need of capital? If we extrapolate from its dividend of 1.5 Singapore cents per share for the first half of 2014, the company would pay out roughly S$40 million in dividends for the whole of 2014. That’s almost half the proceeds from the private placement.

There’s a possible justification for wanting to issue new shares though. And, that is when a company’s management thinks that shares of the company are priced expensively in relation to its real underlying economic value.

Foolish Summary

With the new money coming in, Sheng Siong would need to find high-return projects that can reward shareholders well. Until then, the market may be right in its dislike of the deal.

Source: The Motley Fool

[winston]

vested

Sheng Siong Group: BUY S$0.675; SSG SP
Raises S$80m to fund expansion;
Price Target : 12-Month S$ 0.78 (Prev S$ 0.85)

• SSG raises S$80m to fund expansion through placement of new shares
• Issue of 120m new shares dilutes EPS and DPS by 8%
• Positive outlook with better chances of outlet expansion in Singapore
• Maintain BUY, TP lowered to S$0.78 due to dilution

120m new shares issued raises S$80m to fund expansion. Sheng Siong Group (SSG) yesterday announced that it is placing 120m new shares to investors at S$0.67 each, a 5.37% discount to its prior closing price of S$0.708.

Hence, SSG will raise about S$80m, which will be used to fund its expansion in Singapore, including acquiring new properties for outlet expansion. The company’s share base will thus increase from 1.384bn to 1.504bn.

8% EPS and DPS dilution. The Lim family’s stake in SSG will be diluted from 69.4% to 63.8%. FY15F’s EPS and DPS dilution will be approximately 8% each. With the infusion, SSG’s cash hoard will swell to >S$170m and its net cash will improve to 11.6 Scents per share.

Funding will be positive for growth. We believe the additional cash on hand will enhance SSG’s ability to acquire properties and strengthen its store network in Singapore.

We hence
1) increase our store opening assumption from three to four a year from FY15F onwards, and
2) assume deployment of cash resources to facilitate store openings in our capex forecast.

Our assumptions result in a 1-2% increase in FY15F/FY16F earnings and 7%/6% reduction in EPS.

Maintain BUY, TP reduced to S$0.78. Our TP, based on 25x FY15F earnings is consequently lowered to S$0.78 to largely reflect the 8% dilution in EPS.

We remain positive on the stock as its long-term growth will be underpinned by store expansion in Singapore and its recently announced expansion plans into Kunming China. Maintain BUY.

Source: DBS

[winston]

vested

Time: 5:04PM
Exchange: SGX
Stock: Sheng Siong(OV8)
Signal: Bullish MACD Crossover
Last Done: $0.67

Source: UOBKH

[winston]

vested

Sheng Siong Q3 net profit up 15.4%

SHENG Siong Group posted a 15.4 per cent increase in net profit at S$12.2 million for the third quarter ended Sept 30, 2014, after the market closed on Tuesday.

Revenue for the same period stood at S$186.4 million, up 4.8 per cent from the same period a year ago.

For the nine-month period, net profit was up by 21 per cent at S$35.8 million, while revenue stood at S$547.6 million, a 5.9 per cent increase.

Earnings per share for the group stood at 0.81 of a Singapore cent for the quarter and 2.38 Singapore cents for the nine-month period, up from 0.76 of a Singapore cent and 2.14 Singapore cents during the corresponding periods the year before.

The group's counter closed half a Singapore cent lower at 63.5 Singapore cents on Tuesday.

Source: Business Times

[winston]

vested

A place to hide

We think 2Q is a steady quarter and share looks attractive post-placement sell down.

Sheng Siong's 9M14 core net profit was in line with our expectation and formed 76% of our full-year estimate (76.3% of consensus).

3Q14 core net profit was also in line as gross margins normalised to an expected 24.2% from a surprisingly high 2Q14 figure of 24.7%.

We maintain our FY14-16 forecasts with an unchanged Add rating, but raise our target price to S$0.77 as we roll forward our valuation still based on 21.7x CY16 P/E (discount to DFI).

We still look forward to potential catalysts of
1) concrete store growth plans, and
2) more visibility for its China expansion plans.

Source: CIMB

[winston]

vested

Sheng Siong (SSG SP): SGD0.65
BUY (TP: SGD0.74)

Hurray To Upcoming New Stores

3Q14 net profit rose 15% YoY to SGD12.2m, bringing 9M14 net profit to SGD35.8m (73% of our estimate). We expect the full-year results of this defensive stock to hold up despite the tepid environment.

The company also managed to secure a lease for a new store in Penjuru. With a war chest of SGD179m following the issuance of 120 million new shares in Sep 2014, we expect potential purchases of new retail spaces over the next two years. Maintain BUY, TP SGD0.74, implying 13.8% upside.

Expect stronger revenue growth into 4Q14. Sheng Siong’s 3Q14 revenue increased 4.8% YoY to SGD186.4m, of which 3.4ppt is attributed to same-store sales growth (SSSG). This is the fourth consecutive quarter of positive SSSG, driven mainly by its marketing strategies. Management highlighted that weaker consumer sentiment led to softer YoY growth in the seasonally stronger seventh lunar month, but expects sales growth to normalise at above 5% in 4Q14.

3Q14 gross margin remained strong at 24.2%. We expect the company’s gross margin to stay above 24% going forward (see Figure 4) with more suppliers engaging Sheng Siong in bulk handling due to the labour crunch. The tough operating environment also helps ensure that other supermarkets would not engage in price wars that could hurt their gross margins.

New stores to come.Sheng Siong managed to secure a lease for a new supermarket of 4,000 sq ft in Penjuru to be operational by mid-Nov 2014. The company separately announced it will reallocate SGD22.2m of its unutilised IPO proceeds to fund the expansion of the Group’s business. Together with the issuance of 120 million new shares in Sep 2014, we think Sheng Siong could potentially purchase two additional retail spaces in over the next two years (see Figure 2).

Reiterate BUY, with a DCF-derived TP of SGD0.74. We lift our FY15F and FY16F net profit by 5-6% on an increased store count assumption but cut our TP to SGD0.74 (20.5x FY15F implied P/E) from SGD0.83 due to dilution from the new share issuance.

We continue to like management’s initiatives to drive cost efficiency and are optimistic in the company’s ability to open new stores with its SGD179m war chest.

Source: DMG