EVEN as its current price of 71.5 sen (at the time of writing) trails its initial public offering (IPO) price of RM1.07 by 33%, CGS-CIMB Research has reiterated its “add” call on consumer electrical and electronic product retailer Senheng New Retail Bhd on expectations of healthy sales demand and steady profit margins in its 2Q 2022F.
The research house which has also retained Senheng’s target price at 80 sen further stated that it likes the company for its (i) leading position in consumer electronics which is (ii) backed by a loyal customer base of 3.37 million PlusOne (loyalty programme) members and (iii) wider product offerings vs peers.
“We gather that Senheng’s same-store sales growth (SSSG) across 99 of its 105 stores are expected to be positive while the remaining six outlets could experience contraction in 2Q 2022 sales due to store closures for upgrading purposes,” projected analyst Khoo Zhen Ye and Walter Aw in a company update.
“This ties in with our forecast of circa 20% year-on-year (yoy) growth in 2Q 2022F premised on upbeat sales momentum in April/May 2022 (partly driven by the Hari Raya festive sales and removal of movement restrictions that led to higher consumer footfall as well as the one-off RM500 voucher for electrical appliance purchases from the Malaysian Family Flood Relief Programme) and a lower base in 2Q 2021.”
Recall that Senheng has evoked the fury of many initial public offering (IPO) investors following its lacklustre debut on the Bursa Malaysia’s Main Board on Jan 25 this year with market observers attributing overly priced market valuation as one of the key factors to its share price collapse.
Delving further on prospects, CGS-CIMB Research said Senheng’s expansion plan remains on track with a capex of circa RM160 mil set aside to open 61 new/or upgraded stores by 2024F in urban and sub-urban areas.
“We believe the expansion is a boon for its per store sales and its market position which we have accounted for in our forecasts,” opined the research house. “Senheng shared that it is also re-locating some of its stores to more affluent areas/malls with higher footfall (ie one each in Kuchai Lama and Bangsar), which could bode well for future sales, in our view.”
On improving operational efficiency, CGS-CIMB Research expects 70% of Senheng’s circa 2,000-strong staff force (mostly floor staff and drivers) to be affected by the minimum monthly wage hike of RM1,500 which came into effect on May 1 coupled with rising input costs which could put upward pressure on the company’s cost structure.
“However, Senheng intends to offset the rising costs by focusing on improving its internal cost efficiency and store productivity,” justified the research house.
“Initiatives include enhancing productivity by having its trucks cover wider areas (ie more delivery orders fulfilled per truck) and increasing average transaction sizes per store through store enhancements with better in-store designs and wider product selection. Hence, we expect margins to remain steady.”
At 10.17am, Senheng was down 2.5 sen or 3.38% to 71.5 sen with 1.75 million shares traded, thus valuing the company at RM1.07 bil. – Aug 12, 2022
