Sheng Siong Group

[vesfreq]

Let me contribute on vesfreq's FY2015 forecast.

I am less optimistic on the FY2015 sales growth, since the expansion on new stores have just started recently. It takes 2-3 years to achieve similar same-store-sales. I am expecting FY2015 sales of approx $800 mil, both from new store sales, and improving sales from existing stores.

No point debating on forecast, let's work on your forecast of $816 mil, and look at the expenses. Gross margin of >26% in FY2015, is overly optimistic. The GPM in FY2014, was slightly more than 24%. Management has given FY2015 GPM guidance of 25% , IIRC.

Similar admin expense over larger sales, isn't realistic. Admin expense has been kept around 16% for years. Depreciation expense should be higher, due more PPE. The same for tax expense.

For me, with a sales of $816 mil, the net profit should be around $57 mil, or EPS of 3.8 cents. It is already +20% growth. An EPS of 5-6 cents is overly optimistic, IMO.

(sharing from an existing shareholder)

Thanks for the sharing.

I redid the gp margin. Did three versions of forecast.
1. I added a 1% factor in revenue. Revenue should to some extent correlate with population trend. Singstat data (2005 to 2014) gave an approx population growth rate of 2%. 1% factor should be conservative. Aside from that, loaded a 3% for selling price inflation. My assumption was that the 2 new stores started in Dec 2014 and Jan 2015 should enjoy full year revenue. While, the other 2 starting in May/ June 2015 should be 1/2 yr earnings. Its a simplistic assumption. You are right to say that there some time lag to achieve normalised revenues.
2. I took into account the 25% and I also used fy2014 gp of 24.2% (correct me if i'm wrong). Using the mid point between 24.2 and 25%, I derived a midway forecast.
3. Did an average of prior three year admin expenses and loaded a 15% factor. It seems prudent, aside from using 37/ 33. 37 being the expected number of stores this fy and 33 being the number of stores in 2014 excluding the one opened in dec 2014. 37/33 gives 12%. So, 15% is a more prudent increase in admin. Any views on this?
4. Tax was assumed to 18%, slightly higher than current corporate tax rate of 17%. Effective corporate tax rate is supposed lower. Based on prior yrs' guesstimate, tax as a % of profit appeared to be 18%+-.

I ended with a "midway" eps of 4.13 cts (pe 24 times) and best case eps of 4.3 cts (pe 24 times) . Worst case eps of 3.95 cts (pe 22 times) seems quite close to yours and about 3.5% off yours. Pe of 24 times is derived from dairy farm international (yahoo finance shows 24.55 times) which on the higher end. The pe figures are lower than the sheng pe figure on yahoo finance which is a little high. Is your eps based on conservative case too?

Thanks for sharing. Model makes more sense now.