On Wednesday (Oct 30), RHB raised its price target for Sheng Siong to S$2 from S$1.88 and maintained its “buy” call on the counter.

The new price target represents an increase of around 25 per cent from Sheng Siong’s closing price of S$1.59 on Wednesday, following Tuesday’s release of its results, which included higher earnings estimates for the chain.

RHB analyst Alfie Yeo predicts a positive outlook for Sheng Siong.

“We like Sheng Siong for its earnings growth momentum, attractive valuation… strong cash flow generation, stable balance sheet and good dividend payout,” he said, adding that the company’s earnings third quarter beat RHB’s estimates on better margins and higher profit. network of stores.

“We now expect a more positive earnings outlook, driven by the contribution of new outlets and better gross margins,” he added.

Sheng Siong’s third quarter net profit is here above expectations to S$39.1 million, up 12.6 per cent year-on-year.

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Its 5 percent year-on-year revenue growth was in line with estimates and largely driven by the chain’s opening of five new stores.

“Even though revenue was in line, the increase in profits was due to a better sales mix and growth margins. Operating margins were also supported by higher government subsidies,” Yeo said.

Sheng Siong also improved its gross margins, which beat estimates at 31.3 percent. This was driven by a better sales mix and better-than-expected earnings before interest and tax at S$46 million, up 16 per cent year-on-year.

Yeo said: “Based on the current run rate, we have imputed higher gross margin assumptions, resulting in a 6% increase each in our profit guidance for FY 2024 to FY 2026 »

He expects growth to be driven by Sheng Siong’s store network, with a new store opening in Toa Payoh in the coming months.

Four more bids are currently awaiting tender results and the HDB is expected to launch a tender in the fourth quarter of FY2024; a supermarket is available for tender by May 2025 at Mount Vernon Road.

Sheng Siong’s presence outside Singapore includes six stores in China, one of which opened in the second quarter of fiscal 2024. Its outlets in China contributed 2.6 percent of third-quarter revenue.

Yeo said: “We now expect a more positive earnings outlook, driven by contributions from new outlets and better gross margins. »

Shares of Sheng Siong were trading up 0.6 per cent or S$0.01 at S$1.60 as of 11.46am on Friday.