SINGAPORE (Apr 30): RHB, OCBC and DBS are maintaining their “buy” calls on Sheng Siong Group with target prices of $1.18, $1.06 and $1.21, respectively, after the supermarket operator posted a set of 1Q18 results which came in line with all three research houses’ expectations.
See: Sheng Siong posts 6.6% rise in 1Q earnings to $18.3 mil
In a Monday report, RHB analyst Juliana Cai highlights Sheng Siong as a “clear beneficiary of the recovering consumer sentiment in Singapore”, and says she believes the group could deliver stronger results over the next three quarters now that two more outlets will be opened in 2Q18.
She also expects the group to win at least two new stores in the second half of this year while its existing outlets continue to enjoy the positive sales impact from the recovery in Singapore’s consumer sentiment.
Cai has consequently adjusted her FY18-20 forward earnings estimates upwards by 2-6% to account for this, together with a stronger sales outlook and potential margins growth.
“We note that the group is building an extension to the existing distribution centre, which would bump up its capacity by 20% next year. As such, we are now more optimistic about its potential gross margin expansion, looking ahead,” she explains.
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Separately, OCBC analyst Eugene Chua says Sheng Siong’s latest 1Q18 results, which was driven mainly by higher gross profit, forms 26% of the research house’s estimates for the full year.
While he is keeping a “buy” rating on the counter, its fair value of $1.06 has been put under review pending an analyst briefing.
DBS lead analyst Alfie Yeo's target price of $1.21 is based on 25 times FY18 earnings.
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Like RHB’s Cai, he also expects the group’s margins to expand post the closure of its stores in the Verge and Woodlands, which he notes were a drag on earnings over the last few quarters aside from its Kunming store that contributed its first full quarter’s performance over 4Q18 with “minimal initial losses”, in his view.
Looking ahead, the analyst expects Sheng Siong’s growth to continue being supported by the group’s five new stores which were added by the group in 3Q17.
“There is still no let-up in performance despite closure of two large stores in the Verge and Woodlands and threat from online-shopping. This quarter showed resilience in revenue growth performance and margin expansion,” comments Yeo.
As at 11.25am, shares in Sheng Siong are trading flat at $1.02 or 5.3 times FY18 book according to RHB estimates.
