CIMB cuts Sheng Siong to neutral

Stock Name: Sheng Siong
Company Name: SHENG SIONG GROUP LTD

Research House: CIMB

Price Call: HOLD

Target Price: 0.49

CIMB Research downgraded supermarket chain operator Sheng Siong Group to neutral from outperform and cut its target price to $0.49 from $0.51, citing intense competition that could further hurt its profits.

Sheng Siong’s shares were down 1% at $0.48, but have gained 9% so far this year, underperforming the FT ST Small Caps Index’s 16% rise.

Sheng Siong reported a 74% rise in quarterly net profit to $16.8 million, but CIMB said its core earnings per share was below its expectations, due to lower-than-expected gross margins.

CIMB cut its 2012-2014 earnings per share estimates for Sheng Siong by 3-8% and said the company’s cost savings from bulk handling and higher-margin fresh foods were eroded by higher promotions and discounts.

Out of 5 analysts tracking Sheng Siong, 2 have a buy rating while 3 have a hold recommendation.