Sheng Shiong Group looking at solid FY12 earnings

On-track to match FY10 profits.

Here's more from OCBC:

Amazing start to the year. Despite having no significant developments since our last update report issued on 10 Dec 2012, Sheng Siong Group’s (SSG) share price has soared by more than 25%. We view this amazing appreciation as a result of the street finally factoring in SSG’s successful store expansion phase last year, and playing catch-up by raising its expectations for the company ahead of its FY12 results release.
FY12 results preview – a good year for SSG.

SSG closed out FY12 with 33 stores (Gross Floor Area: +50K sf to 400K sf). SSG is on-track to at least match its best net-profit performance back in FY10, which included a S$9.4m gain from investments. Although its 4Q12 will experience a decline due to seasonal weakness and year-end stock count, we do not expect a stock count write-off of last year’s magnitude (a S$1.7m inventory write-off reduced gross profit margins by 1.2ppt).

Forward projections already positive. We had previously upgraded SSG’s FY13/14 revenue growth to 10% on account of full-year contributions from the eight new stores opened in FY12. In addition, we factored in gross profit margin stability – as a result of minimal price competition amongst the Big 3 supermarket operators – and effective management of operating expenses i.e. salaries and wages through the introduction of more variable components.

While we continue to favour the company’s management and its growth prospects, its recent price action has been far too exuberant and unsustainable (TTM PE of 33x), in our view. We recommend investors take some profit around current levels, and wait patiently to re-enter at lower levels around S$0.55.

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