• Maintain BUY and higher SGD2 TP from SGD1.88, 27% upside and 4% yield. We like Sheng Siong for its earnings growth momentum, attractive valuation (near -1SD or c.17x from its historical mean forward P/E of c.19x), strong cashflow generation, stable balance sheet, and good dividend payout. 3Q24 outperformed our estimates on the back of better margins and a larger store network. We raise our FY24F-26F earnings by 6% each. We roll our TP from 21x blended FY24-25F P/E to FY25F’s earnings base.

• 3Q24 net profit above on better sales mix. Revenue came in at SGD363m (+5% YoY) while earnings rose 12.6% YoY to SGD39m – above expectations. Revenue was in line with estimates, with growth largely led by four new stores and SSSG of 1.5% YoY. Gross margins outperformed our estimates at 31.3% on better sales mix. EBIT was also above expectations at SGD46m (+16% YoY) due to better gross margin and higher progressive wage credit grant from the Government. Operating margins improved 1.2ppts to 12.6%.

• Raise FY24F-26F’s earnings by 6% each. 3Q24 tuned in a better-thanexpected performance. While revenue was in line, the earnings uplift was due to better sales mix and gross margins. Operating margins were also helped by higher government grants. Based on the current run rate, we have imputed higher gross margin assumptions, which results in lifting our FY24F-26F earnings by 6% each. We have also raised our TP as we roll forward our valuation from 21x blended FY24F-26F P/E previously to 21x FY25F P/E.

• Expect growth to be driven by store network. SSG has outperformed our store opening target of three for the year, having opened four new stores. There are four other bids awaitng tender results and a new confirmed Toa Payoh outlet opening in the coming months. The Housing & Development Board (HDB) will also have one more tender put up for bidding in 4Q24. According to HDB’s upcoming units scheduled for tender, there will be one supermarket available for tender by 31 May 2025 at Mount Vernon Road. China now has six outlets – having opened one in 2Q24 – and now contributes 2.6% of 3Q24’s revenue. We now expect a more positive earnings outlook, driven by contribution from newer outlets and better gross margins.

• Key downside risks to our EPS estimates include slower-than-expected store openings, lower sales demand and per sq ft traction, and the inability to maintain gross profit margins at current levels. However, we expect SSG’s performance to remain resilient as it targets the mass market value segment, which will enjoy effects of downtrading in a soft consumption environment, in our view. Our TP includes a 2% discount to the intrinsic value, as SSG’s ESG score of 3.0 is below the 3.1 country median.

Source: RHB Securities Research - 1 Nov 2024