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Brokers' take: Higher target prices for Sheng Siong on 'counter-cyclical' buy

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TWO brokerages raised their target price for supermarket chain Sheng Siong Group after it posted an 11.3 per cent rise in quarterly profit.

TWO brokerages raised their target price for supermarket chain Sheng Siong Group after it posted an 11.3 per cent rise in quarterly profit.

Shares of Sheng Siong rose 2.6 per cent, or 2.5 Singapore cents, to S$0.985, as at 2.25pm.

Its second-quarter net profit jumped to S$15.2 million. Revenue for the three months ended June 30, 2016, rose 5.5 per cent at S$189 million on contributions from new-store sales.

CIMB Research raised its target price to S$1.04 from S$0.97, and kept its "add" rating on the stock.

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It noted the record-high gross margin at 26.1 per cent, driven by suppliers' rebates, bulk handling and continued efficiency gains from its central distribution centre. The brokerage was also surprised by the sharp improvement in the same-store-sales-growth (SSSG), reversing from two consecutive quarters of negative SSSG.

"We continue to like the stock's highly cash generative business and high dividend yield," said CIMB Research. "Catalysts could come from China, where renovation works are currently underway and operations are likely to commence in the fourth quarter."

Maybank Kim Eng said Sheng Siong remains a counter-cyclical play, as it raised the target price to S$1.13 from S$1.12.

"As the economy weakens, we expect it to benefit from consumers trading down," the brokerage said, which had a "buy" rating on the stock.

It also expects upside to average annual margins of 26 per cent over the next three years on more higher-margin fresh produce and rollout of more productivity measures, such as hybrid payment terminals.

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