Sheng Siong upgraded to Add, target raised by CIMB on rosier outlook

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CIMB upgraded Sheng Siong to Add from Hold, citing a “rosier” outlook for 2018 and the opportunity to open new stores.

The bank noted that beyond the four new stores for this year that Sheng Siong has already announced, there were still around 18-20 supermarket opportunities available this year, which could offer potential catalysts for further store growth.

CIMB said 2017 core net profit of S$67.6 million, up 7.9 percent on-year, matched its forecasts, with new stores driving a 4.2 percent revenue rise for the year.

Fresh food advantage

The gross profit margin for the fourth quarter rose to 26.5 percent from 26.1 percent in the third quarter and 25.7 percent in 2016, CIMB noted, attributing it to lower input prices, higher supplier rebates and a higher fresh food mix.

”We think this is impressive given the emergence of Amazon Prime in July 2017 which was expected to have an impact,” CIMB said in the note dated Friday. “Moving ahead, management intends to watch its costs and enhance its product mix in which fresh food seems to garner premium margins.”

CIMB raised its target price to S$1.08 from S$0.98 after increasing its 2018-2019 earnings per share (EPS) forecasts by around 8 percent each.

Shares of Sheng Siong were up 0.54 percent at S$0.935 at 10:04 A.M. SGT, marking the day’s high so far. January’s high of around S$0.94 may offer the next resistance, followed by November’s high of S$0.96.

Singapore two-dollar bills