Sheng Siong Group: On track to deliver a record year of new store openings
- 1Q25 revenue of SGD403mn (+7% y/y) and earnings of SGD36mn (+6% y/y) in line
- Earnings supported by revenue growth and gross margin expansion, partially offset by higher staff costs and lower finance income
- FY26F earnings lifted by 2.5% on benefits from more new store openings in FY25
- Lifting TP to SGD2.00 on a 19x PE on a blend of FY25F/FY26F earnings to reflect growth prospects driven by record new store openings
Strong 1Q25 results in line with expectations. SSG reported revenue of SGD403mn (+7% y/y) and earnings of SGD36mn (+6% y/y) in 1Q25, both in line with expectations, forming 26% of our FY25F estimates. Gross margin improved 90bps y/y to 30.3%, helping offset a 12% y/y rise in operating expenses and lower net finance income.
Revenue growth led by new store openings. New stores contributed +6% y/y to revenue growth, while China added +0.7% y/y, likely due to the additional store. Same-store sales were broadly flat y/y, mainly due to seasonal shifts – an earlier Chinese New Year and partial offset from an earlier Hari Raya.
Six new stores secured, adding to FY25 new store pipeline. SSG secured four out of five HDB tenders it bid for, along with two private sites at KINEX and Cathay. These stores are expected to open progressively by early 3Q25, bringing FY25 confirmed store openings to eight. Results for four additional HDB tenders are still pending.
Analyst briefing & non-deal roadshow takeaways
We attended the analyst briefing and held a non-deal roadshow for the company. Our key takeaways are summarised below:
Financial performance
Flattish same-store sales due to COVID-19 base and seasonality. Management noted that industry growth was elevated during COVID-19, creating a high base. This, alongside seasonal timing, led to flat performance y/y.
Gross margin expansion driven by fresh mix and scale. The fresh category margin expanded due to better procurement and higher volume discounts. Fresh mix also increased y/y, and management believes there is further room to grow. Meanwhile, house brand contribution (margins at 10-15% higher than national brands) was flattish y/y.
No aggressive push for house brands. While house brands offer better margins, management stressed the need for prudence due to risks of inventory write-offs. Current focus remains on high-turnover essentials (e.g. rice, oil, paper) which are better able to meet minimum order requirements. It highlighted that its house brand mix is in line with competitors.
Labour cost pressures to persist. Ongoing wage pressures from the progressive wage model and reluctance among locals to take on retail jobs remain a challenge. SSG is investing in automation such as self-checkout counters but acknowledges that the current tech is not advanced enough to fully replace in-store roles.
Cash to be deployed for operational growth, not property play. Management highlighted that it could utilise its cash reserve to acquire properties for supermarket operations. Such acquisitions would only be at a reasonable valuation and not intended for operations as a landlord. Strategic supply chain investments are also under consideration.
Store Expansion Plans
Four out of five HDB tenders won; four more pending. SSG secured four of five tenders awarded, losing one to a competitor that bid at a premium of SGD15.80/psf (vs. SGD12-13/psf for new estate sites). It did not bid for the Serangoon North store due to its suboptimal location. Management awaits results for four more tenders, three of which are in new estates.
Secured private site were opportunistic and low risk. SSG was approached by KINEX and CATHAY, as such was able to secure leases at attractive rate of <SGD10/psf on 3+3-year terms. These sites mark new catchments for the group. Management reiterated that it has no intention to enter the premium segment; store formats will remain consistent with its existing outlets and focused on value, though product assortment may be tailored to suit local demographics.
Inventory remains manageable but stretched. With its distribution centre at full capacity, SSG currently supplements its capacity via third-party warehousing. With additional new stores, inventory is expected to remain manageable, though opportunistic buys may be limited due to space.
No store closures planned in 2025. The last store SSG closed was Yishun Central in 2022, due to a rental disagreement with the landlord. Currently, while some stores may be unprofitable, the company continues to actively evaluate the circumstances and take a long-term view of the store prospect. It may consider rationalisation of stores down the road, but not in the near term. However, it noted that 1-2 stores could close as HDB reclaims the stores for redevelopment purposes.
SG-JB RTS and SEZ impact
Direct impact minimal, indirect effects expected to be modest. Management agrees with our conclusion in a prior report (More Fad than Trend?) that the impact of the Rapid Transit System (RTS) and Special Economic Zone (SEZ) would likely be indirect in terms lower grocery purchases as consumers travel more often to JB and dine out for the day. Management also noted that it could see slower sales of certain products with high price differential like milk powder and diapers, which generally have low margins.
Potential opportunity with Malaysian consumers. Management stated that the company currently has seven stores near the Woodlands Causeway. Based on prior experience, operating a store close to the causeway is profitable (Woodlands Central store generated SGD50mn annual revenue, but was closed as HDB reclaimed the store for redevelopment). It is believed that Malaysians do buy certain groceries – such as blueberries – in Singapore, which are not as accessible in Malaysia due to trade restrictions.
No plans to expand into Malaysia. Despite overtures to enter Johor, SSG has no intention of expanding across the border, citing supply chain complexities and limited sourcing synergies due to price segmentation between Malaysian and Singaporean markets.
Macrovalue threats
Business as usual with Macrovalue takeover of Giant Malaysia. Management is monitoring developments following Macrovalue's acquisition of Giant Malaysia but has yet to observe any material change in strategy. What strategy would be adopted going forward in the Singapore market remains uncertain.
Trade war impact
Relatively insulated from the ongoing trade war. Management highlighted that SSG mainly imports from around the Southeast Asia region and China, with imports from the US being limited. As China itself does not export fresh produces to the US, there is limited bargaining headroom for better discounts due to the trade war. Though it highlighted that there could be potential impact due to shift in trade flows, the exact impact remains uncertain.
Our Views
Maintain FY25F earnings as higher gross profits are offset by increased costs. With six new stores opening by early 3Q25 – ahead of expectations – and a potential two more by year-end, we now expect FY25F revenue to rise by 1% from SGD1,541mn to SGD1,557mn. Following 1Q25 trends, we revise our gross margin assumption upwards from 30.7% to 31.2%, supported by stronger economies of scale. However, higher staffing and operating costs from store expansion led to us raising our operating expense ratio from 20.6% to 21.0%, effectively offsetting gross profit gains. We therefore maintain our FY25F earnings forecast.
Lift FY26F earnings by 2.5% on margin expansion and store breakeven. Given the higher number of new store openings in FY25F, we revised revenue up by 3.5% from SGD1,632mn to SGD1,688mn. With a typical 18–24-month breakeven period, the six stores opened in 2024 are expected to contribute positively to earnings in FY26F. Accordingly, we revise our gross margin estimate from 30.9% to 31.7%, reflecting continued scale efficiencies. In addition, we also adjusted operating expenses slightly from 21.0% to 21.1%. Net-net, we expect FY26F earnings to come in 2.5% higher than our previous forecast.
Maintain BUY with a higher TP of SGD2.00. We apply an unchanged 19x forward P/E multiple on a blended FY25F/FY26F earnings base to reflect the strong growth outlook, underpinned by a record-high 16 store openings across 2024-25 and the anticipated industry uplift from SG60 voucher disbursements in 2H25/1H26.
| FY Dec | 1Q2024 | 4Q2024 | 1Q2025 | % chg yoy | % chg qoq |
|---|---|---|---|---|---|
| Revenue | 376 | 351 | 403 | 7.1 | 14.7 |
| Cost of Goods Sold | (266) | (245) | (281) | 5.8 | 14.9 |
| Gross Profit | 111 | 107 | 122 | 10.2 | 14.4 |
| Other Oper. (Exp)/Inc | (68.6) | (73.6) | (76.9) | 12.1 | 4.5 |
| Operating Profit | 42.1 | 33.1 | 45.1 | 7.1 | 36.4 |
| Other Non Opg (Exp)/Inc | 0.00 | 0.00 | 0.00 | - | - |
| Associates & JV Inc | 0.00 | 0.00 | 0.00 | - | - |
| Net Interest (Exp)/Inc | 2.09 | 2.21 | 1.73 | (17.0) | (21.6) |
| Exceptional Gain/(Loss) | 0.00 | 0.00 | 0.00 | - | - |
| Pre-tax Profit | 44.2 | 35.3 | 46.8 | 6.0 | 32.7 |
| Tax | (7.85) | (6.81) | (8.30) | 5.7 | 21.8 |
| Minority Interest | (0.01) | 0.06 | 0.05 | nm | (28.6) |
| Net Profit | 36.3 | 28.5 | 38.6 | 6.2 | 35.2 |
| Net profit bef Except. | 36.3 | 28.5 | 38.6 | 6.2 | 35.2 |
| EBITDA | 55.5 | 50.9 | 60.3 | 8.7 | 18.5 |
| Margins | |||||
| Gross Margins (%) | 29.4 | 30.4 | 30.3 | ||
| Opg Profit Margins (%) | 11.2 | 9.4 | 11.2 | ||
| Net Profit Margins (%) | 9.7 | 8.1 | 9.6 |
Source: DBS, Company
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