CGS-CIMB Research analyst Cezzanne See remains positive on Sheng Siong Group following healthy Singapore supermarket and hypermarket sales reported for the first two months of 2021.

She has maintained her ‘add’ call for the counter with an unchanged target price of $1.88 in a research note dated April 13.

According to Singapore’s Department of Statistics (SingStat), supermarket sales and hypermarket sales rose 7.3% y-o-y in January and 13.6% y-o-y in February, which See says is a “pleasant surprise” given the higher bases of 9.4% in January 2020  and 15.4% in February 2020.

She attributes the performance to many Singaporeans still working from home, as well as better sales during the Chinese New Year (CNY) period given that most Singaporeans were not able to travel.

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Noting that 1Q is historically a strong quarter due to CNY celebrations, See estimates Sheng Siong’s revenue grew 6% y-o-y to $348.5 million in the 1Q2021 ended March.

See opted for a more conservative revenue growth estimate despite the 10% average sales growth for Singapore supermarkets and hypermarkets for January and February, citing a potential shrinkage in Sheng Siong’s March sales give that there were no lockdowns.

Nonetheless, she expects 1Q2021 gross profit margin of 27.4% compared to 27% in 1Q2020 as Sheng Siong improves its sales mix and supply chain efficiency.

Based on the higher revenue and margin, she estimates net profit increased 3.3% y-o-y to $29.7 million in 1Q2021.

Looking ahead, See’s still believes Sheng Siong’s FY2021 net profit will decrease 21.7% y-o-y. “Our forecasts are intact as revenue growth could decline as the country normalises from the impact of Covid-19,” she says.

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Despite the lower earnings, See still likes the counter. “While earnings should normalise in FY2021, we still think Sheng Siong deserves to trade at a premium over its historical average due to its strong balance sheet and strong market share in Singapore’s supermarket space,” she says.

Meanwhile, she expects Sheng Siong to increase store acreage by around 25,000 square feet in FY2021 and 20,000 square feet in FY2022, which could potentially catalyse earnings.

As at 11.48am, shares in Sheng Siong are up 1 cent or 0.65% higher at $1.54.