RHB raises price target for Sheng Siong on positive outlook

RHB raised its price target on Sheng Siong to $2 from $1.88 on Wednesday (Oct 30) and kept its “buy” call on the counter.

The new price target represents about a 25 percent premium to Sheng Siong’s Wednesday closing price of $1.59, following its earnings release on Tuesday, 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 cash flow generation, stable balance sheet and good dividend payout,” he said, adding that third-quarter earnings beat RHB estimates on basis of better margins and higher margin. network of stores.

“We now expect a more positive earnings outlook, driven by the contribution of new markets and better gross margins,” he added.

Sheng Siong’s net profit for the third quarter came in beyond expectations to $39.1 million, up 12.6% from the previous year.

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Its 5% year-over-year revenue growth was in line with estimates and largely driven by the chain opening five new stores.

“While revenue was in line, the increase in earnings was due to better sales mix and growing margins. Operating margins were also helped by higher government subsidies,” Yeo said.

Sheng Siong also improved its gross margins, which beat estimates at 31.3%. This was based on a better sales mix and its earnings before interest and taxes, which beat expectations at $46 million, up 16% from a year earlier.

Yeo said: “Based on the current run rate, we have imputed higher gross margin assumptions, which results in raising our earnings forecasts for FY2024 to FY2026 by 6% each.”

He expects growth to be supported by Sheng Siong’s chain of stores, with a new store set to open in Toa Payoh in the coming months.

Four other bids are currently awaiting tender results and HDB is scheduled to launch a tender for the tender in the fourth quarter of FY24; a supermarket is up for auction until May 2025 at Mount Vernon Road.

Sheng Siong’s presence outside Singapore includes six stores in China, one which opened in Q2 of FY2024. Its outlets in China contributed to 2.6% of Q3 revenues.

Yeo said: “We now expect a more positive earnings outlook driven by contributions from newer markets and better gross margins.”

Shares of Sheng Siong were trading up 0.6%, or $0.01, at $1.60 by 11:46 a.m. on Friday.