Nomura raised its forecasts for supermarket operator Sheng Siong after two new stores were confirmed and another two were likely.
Sheng Siong said on Friday that Singapore’s Housing and Development Board (HDB) accepted the tender for a lease at Block 785E Woodlands Rise, with the around 10,030 store expected to be operational in September. The company also entered a lease agreement with Dollar Land Singapore for new premises at 1 Woodlands Road, Junction 10, with 20,370 square feet of retail area, it said.
The supermarket operator also noted that operations of two new stores, at Bukit Batok Block 440 and Yishun Block 675, have begun operations, with 5,900 and 5,320 square feet of retail space respectively.
On the back of the new store wins, Nomura increased its target price to S$1.27 from S$1.15 on the new stores, it said in a note this week.
It raised its new store assumption by around 48,000 square feet, resulting in an around 6 percent revenue and 11 percent profit after tax and minority interests gain over fiscal 2018-20, Nomura said.
“Against a backdrop of market uncertainty and volatility, we think SSG should trade at a premium for 1) being defensive in nature; and 2) its ability to generate growth in an otherwise, developed and mature market,” Nomura said.
But it added that while this year was “fruitful” for new store openings, it expected new location openings would slow gradually in 2019-20, with further upside to come from margin expansion. Nomura noted that it typically takes Sheng Siong Supermarkets around three years to reach full revenue potential.
It kept a Buy call.
“While we anticipate stronger competition from e-commerce players, we believe Sheng Siong’s strength in fresh produce should continue to generate a competitive advantage and higher gross margins, resulting in market share gains,” Nomura said.
The stock was down 0.90 percent at S$1.10 at 13:13 SGT.