RHB on Wednesday (Oct 30) raised its price target for Sheng Siong to S$2 from S$1.88 and kept its “buy” call on the counter.
The new price target represents a roughly 25 per cent upside from Sheng Siong’s Wednesday closing price of S$1.59 following the Tuesday release of its earnings, which included higher earnings estimates for the chain.
RHB analyst Alfie Yeo forecast a positive outlook for Sheng Siong.
“We like Sheng Siong for its earnings growth momentum, attractive valuation … strong cashflow generation, stable balance sheet and good dividend payout,” he said, adding that third-quarter earnings beat RHB’s estimates on the back of better margins and a larger store network.
“We now expect a more positive earnings outlook, driven by contribution from newer outlets and better gross margins,” he added.
Sheng Siong’s net profit for the third quarter came in above expectations at S$39.1 million, rising 12.6 per cent year on year.
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Its revenue growth of 5 per cent year on year was aligned with estimates, and largely driven by the chain’s opening of five new stores.
“While revenue was in line, the earnings uplift was due to better sales mix and growth margins. Operating margins were also helped by higher government grants,” said Yeo.
Sheng Siong also improved its gross margins, which outperformed estimates at 31.3 per cent. This was on the back of a better sales mix and its earnings before interest and taxes, which came in above expectations at S$46 million, rising 16 per cent on year.
Yeo said: “Based on the current run rate, we have imputed higher gross margin assumptions, which results in lifting our earnings forecasts for FY2024 to FY2026 by 6 per cent each.”
He expects growth to be driven by Sheng Siong’s store network, with a new store set to open in Toa Payoh in the coming months.
Four other bids are currently awaiting tender results and the HDB is slated to put up a tender for bidding in the fourth quarter of FY2024; one supermarket is available for tender by May 2025 at Mount Vernon Road.
Sheng Siong’s presence outside Singapore include six stores in China, with one that opened in Q2 of FY2024. Its China outlets contributed to 2.6 per cent of Q3’s revenue.
Yeo said: “We now expect a more positive earnings outlook, driven by contributions from newer outlets and better gross margins.”
Shares of Sheng Siong were trading up 0.6 per cent or S$0.01 at S$1.60 as at 11.46 am on Friday.