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Brokers' take: RHB raises target price on Sheng Siong

BROKER RHB reiterated its "buy" call on Sheng Siong and raised its target price (TP) to S$1.30, up from S$1.27 previously, citing new store wins and greater potential for growth. The new TP represents a 19 per cent upside from the counter's last closing price. 

As at 10.40am on Monday, Sheng Shiong shares were trading flat at S$1.09 apiece. 

Sheng Siong on Friday announced two new store wins, bringing the group's total store count to 52 this year up from 44, and total store wins to eight this year – in line with RHB's forecast.

The first new store located at Block 785E Woodlands Rise, was won through the Housing and Development Board’s (HDB) private tender,
with a size of 10,030 square feet, and is expected to be operational in September. 

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The second store in Junction 10 has a bigger floor space of 20,370 sq ft, and was previously leased to Giant Hypermarket, RHB noted. This lease was entered into with Dollar Land and is conditional upon Dollar Land delivering vacant possession of the premise on Sept 26.

In addition, two new stores are also in the pipeline with Sheng Siong being the highest bidder for two new shops at Block 451 Bukit Batok, and Block 573 Woodlands.

Said RHB: "Barring any unforeseen circumstances, HDB is likely to accept these bids over the next couple of months, and we expect these stores to commence operations either late this year or early next year." 

The brokerage has also raised its 2019 to 2020 forecasted earnings by 2 to 3 per cent, noting a larger-than-expected retail space.

"Given that a typical supermarket takes approximately three years to ramp up to a mature level of revenue, we expect the group’s earnings to grow at a compound annual growth rate of 11 per cent over 2017-2020F."

RHB analyst Juliana Cai added that there is still potential for growth for the counter, and cites Sheng Siong as the brokerage's top pick within the Singapore consumer sector. 

"Based on the HDB website, there are still six new supermarkets sites scheduled for tender from now until the end of the year. Any further new store wins for Sheng Siong would provide further upside potential to our current estimates," Ms Cai said.