Brokers' take: RHB upgrades Sheng Siong to 'trading buy' on grocery activity pick-up

RHB on Monday upgraded supermarket operator Sheng Siong to "trading buy", with a raised target price of S$1.95 from S$1.70.

This comes as Singapore's multi-ministry taskforce announced further measures and restrictions under Phase Two (Heightened Alert), which prohibits mask-off activities and dining-in at food and beverage outlets.

RHB said the tightened restrictions should result in a pick-up in grocery-shopping activities and benefit Sheng Siong, as demand for food delivery and groceries should spike.

The research team expects sales to climb again in the May-June period. If the spread of Covid-19 does not taper down, containment measures may be extended.

RHB has also raised its forecast for Sheng Siong's FY2021 profit after tax and minority interests by 14.5 per cent. The research team's S$1.95 target price is pegged at 23 times its forecast FY2021 earnings.

That being said, new store openings for Sheng Siong are likely to be delayed due to the slower pace of construction. Previous delays in building activities had also caused job backlogs to pile up.

Since the government declared DORSCON Orange in Singapore, there has only been one tender in November 2020 for two new HDB shops for use as supermarkets, which Sheng Siong did not win. Given that no new tenders have been launched since then, RHB believes they will likely only resume when construction activities pick up or normalise.

Shares of Sheng Siong were trading 2.4 per cent or S$0.04 lower at S$1.62 as at the midday break on Monday.