SINGAPORE (Oct 27): DBS Vickers Securities is keeping its “buy” call on Sheng Siong Group with a higher target price of $1.19 from $1.18 previously, following the supermarket chain operator’s announcement yesterday of a 8% rise in 3Q earnings to $15.7 million.

(See also: <a href="http://www.theedgemarkets.com.sg/sg/article/sheng-siong%E2%80%99s-3q-earnings-8-higher-revenue-and-gross-margins" target="_blank">Sheng Siong’s 3Q earnings up 8% on higher revenue and gross margins</a>)

In a Thursday report, analysts Alfie Yeo and Andy Sim say they continue to like Sheng Siong for its earnings growth traction, efficient operations, strong ROE, and net cash balance sheet.

(See also: <a href="http://www.theedgemarkets.com.sg/sg/article/supermarket-and-grocery-store-operators-lead-pack-commerce-sector" target="_blank">Supermarket and grocery store operators lead the pack in commerce sector</a>)

“We had previously taken a view that gross margin of 26% that was reported in 2Q16 would be sustainable. This was validated in the current set of results,” say the analysts, adding that they continue to favour the group for its defensive earnings qualities a dividend yield of about 4%.

Highlighting the stock’s display of earnings growth momentum against a “difficult operating environment” in Singapore’s retail scene, the analysts expect gross margins to expand on a y-o-y basis over the next two quarters.

They elaborate that this will be accomplished through the group’s direct sourcing of fresh products especially vegetables from farms regionally, house brands, more bulk purchasing and a higher mix of fresh food.

However, should competitors begin to offer excessive discounts and promotions in the market, this will ultimately result in lower margins, warn Yeo and Sim.

Shares of Sheng Siong are up 0.5% at $1.08.

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