Sheng Siong Group’s (SSG) 1Q18 PATMI came in within our expectations as it grew 6.6% YoY to S$18.3m, and formed 26% of our FY18 estimates.

This was driven mainly by higher gross profit, contributed by:

1. higher sales mix of fresh products which command a higher GPM versus non-fresh products,
2. suppliers’ rebates, and
3. an increase in revenue of 5.1% to S$228.3m but would have grown by 4.3% excluding China.

1Q18 revenue growth from Singapore was driven by seven new stores (+6.7%) and same store sales (+5.6%), but offset by a 8.0% YoY decline in revenue from permanent closure of The Verge and Woodlands Block 6A stores.

1Q18 administrative expenses rose 11.8% largely due to net increase in headcount to operate the seven new stores after absorbing staff released from the closure of two stores. The new store in Kunming, China commenced operation in Nov 17, and recorded a S$0.1m loss in 1Q18.

SSG has also successfully bid for two new stores in Singapore, which are expected to commence in 2Q18.

Pending an analyst briefing, we maintain BUY but put our FV of S$1.06 under review.

Source: OCBC Research - 30 Apr 2018