SINGAPORE (Aug 20): RHB Research is highlighting Sheng Siong Group (SSG) as its top consumer cyclical “buy” pick with a higher target price of $1.30 compared to $1.27 previously, upon raising 2019-2020F earnings by 2-3% on larger-than-expected retail space.

This comes after the group announced two new stores last Friday, bringing its total store count up to 52 from 44, in line with the research house’s full-year forecast and marking the “highest store win in history”, in RHB’s view.  

To recap, the first 10,030 sq ft store at Woodlands Rise was won through a HDB private tender, and is expected to be operational in Sept this year.

A second 20,370 sq ft store is located at Junction 10, which is also at Woodlands and has a significantly larger retail size as it was previously leased to Giant Hypermarket. Its current lessee, Dollar Land, is due to deliver vacant possession of the premise on 26 Sept this year.

In a Monday report, analyst Juliana Cai says she expects the SSG’s earnings to grow at a CAGR of 11% over 2017-2020F, given that a typical supermarket takes approximately three years to ramp up to a mature level of revenue.

She also anticipates SSG will be awarded another two new stores at Bukit Batok and Woodlands, respectively, by HDB over the next couple of months –  considering the group’s status as the highest bidder – with these stores to commence operations either in late 2018 or early 2019.

“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,” says Cai.

As at 10.31am, shares in SSG are trading flat at $1.09 or 5.66 times Dec 18F book.