Sheng Siong Group's profits jumped 22.5%

Its cost management initiatives to continue in 2013.

According to OCBC Investment Research, Sheng Siong Group’s (SSG) 1Q13 results came in within expectations. Revenue increased 12.3% YoY to S$179.4m while gross profit and operating margins improved to 22.5% and 6.9% respectively (+1.7 ppt and +0.9 ppt each) following continued cost management initiatives. 

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This resulted in 1Q13 core net profit coming in 30.7% higher YoY at S$10.5m (excluding 1Q12’s one-time gain of S$10.4m from the sale of its Marsiling warehouse and S$1.6m tax provision).

Outlook remains positive for SSG. Aside from the seasonal bump related to the Lunar New Year, revenue was boosted by the contributions from the eight new stores opened since 1Q12.

With this 14.9% increase in gross floor space to 400K s.f since then, SSG will experience an increase in revenue in the coming quarters even without adding further stores.

That said, management maintains its 10% retail space growth target for FY13, which is achievable in our view given the ongoing estate rejuvenations plans for older estates such as Hougang.

Cost management to continue. In spite of ongoing input and wage pressures, the group’s margins have remained stable and we continue to have faith in the group’s cost management initiatives.

In terms of the competitive landscape, we are unconcerned by Dairy Farm’s recent move to rebrand its Shop n Save shops to Giant stores as we believe that none of the Big 3 supermarket players would risk another price war similar to that in 4Q11.

The tacitagreement since then has led to a recovery in margins for everyone.