• 1Q15 SSSG was 2.4% versus 4.7% in FY14; pipeline expansion on track.
• We remain cautious on SEM’s near-term earnings outlook, given slower consumer spending post GST.
• Maintain earnings forecasts and HOLD call with an unchanged TP of MYR1.70.

What’s New

1Q15 revenue was partly affected by floods in East Coast, Peninsular Malaysia. SEM estimated a loss of MYR2.8m in revenue due to store closures. Also, we understand that SEM did not benefit as much from pre-GST stocking activities as most pantry loading activities were to the advantage of the hypermarkets. That said, SEM still saw SSSG of 2.4% in 1Q15 vs 4.7% in FY14. As for average spend per customer, it remains on a healthy uptrend (+11.1% YoY). In-store services were 3.5% of 1Q15 revenue (3.4% in FY14). SEM currently has TM and Astro for bill payment services and is looking to add some utility players in 2H15. SEM continues to expand its fresh food range. Nevertheless, as these are mainly on offer at its Next Gen & QWFS stores for which there are just 99 currently, we do not expect much of shift in merchandise mix in the near term. Pipeline expansion is still on track with 57 net store openings in 1Q15. As of end-Mar, SEM has 1,802 stores. SEM also refurbished 50 stores in the quarter, in line with expectations.

What’s Our View

We remain cautious on SEM’s near-term earnings outlook as we expect a moderation in consumer spending post GST implementation (1 Apr 2015). Positively, we are comforted by its ongoing outlet and merchandise/in-house service expansion plans. We maintain our earnings forecasts, HOLD call and TP of MYR1.70 (pegged to 24x FY16 PER), in line with peers.

Source: Maybank Research - 10 Jun 2015