FREE Stock in Focus: SSI (2 Sept 2019) by Regina Capital Dev’t Corp.

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SSI’s margins are likely to improve in the near term as well. Thus, we would retain our Target Price of PHP 3.10/share and recommend BUY. This offers a 11.11% upside from its last trading price of PHP 2.79.

The strong performance of SSI in 2018 was sustained well into the first half of 2019. First half earnings stood at PHP 345.94 million, +22.12% year-on-year (y/y), coming from the similarly strong first 2 quarters which saw its bottomline expand by +28.43% y/y and +16.55% y/y respectively. Moreover, the firm’s profit growth can be attributed mostly to its cost-saving initiatives since topline growth during the first half remained in the mid-single digits.

Optimistic on Shake Shack expansion

Shake Shack’s performance had not been reflected in the firm’s 1st Half (1H) 2019 earnings performance yet since it was only opened during the latter part of the first half. Nevertheless, SSI’s management is optimistic about its reception and is even looking into expanding its food business. In line with this, SSI’s management is looking into the next 2 possible locations of Shake Shack and is set to introduce a new food concept before the year ends although, no additional details have been provided yet.

Store closures to lift earnings

SSI continued to close down its stores and reduce gross selling space. As of end-June, the retailer has a total of 593 stores, 23 less than during the same period last year and 3 stores fewer than 2018. Its store closures and other cost-saving initiatives are expected to continue in lifting the firm’s earnings for the full year.

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