In 3Q12, earnings rose by 48% yoy to S$9.8m, on the back of a 16% increase in sales  to  S$169.7m.  This  exceeds  ours  and  consensus  estimates  and  is attributed  to  a  faster  rate  of  expansion  than  previously  guided.  We  had  earlier assumed  a  10%  increase  in  retail  space  but  YTD  the  Group  has  already surpassed  that  mark,  registering  a  12%  increase.  Two  more  new  stores  are slated to be opened in 4Q12 thereby increasing the Group's total retail space by 15%  yoy  to  400k  sf.  We  raise  our  earnings  by  4%/5%  in  FY12/13  to  take  into account  the  faster  rate  of  expansion  and  rollover  our  valuations  to  FY13.  We derive  a  marginally  higher  TP  of  S$0.53  pegged  at  19x  FY13F  P/E,  which  is  -1SD  from  its  historical  mean  trading  band.  We  like  the  stock  for  its  defensive profile coupled with a generous yield of 5-6%. Its closest peer Dairy Farm is now trading at 30x P/E. Maintain BUY.

Expanding  fast  &  furious.  In  the  first  nine  months  of  the  year,  the  Group  has opened  new  stores  in  Toa  Payoh,  New  World  Centre,  Geylang,  Bukit  Batok, Bedok  North  and  Yishun  Central  supermarkets.  As  at  3Q12,  the  Group's  store network  has  grown  to  31  stores  with  GFA  growing  12%  yoy  to  391k  sf.  In  the coming  4Q12,  we  expect  two  more  stores  to  begin  operations  at  Ghim  Moh (3,500sf)  and  Clementi  (5,300sf)  resulting  in  full  year  growth  in  GFA  of  15%  to 400k sf across 33 stores.

Gross  margins  in  recovery  mode.  We  note  that  3Q12  gross  margins  have gradually  improved  for  the  third  consecutive  quarter  to  22.9%  against  our  full year forecast of 22.0% (4Q11: 20.5%, 1Q12: 20.8%, 2Q12: 21.9%). The number of higher margin housebrand products that the Group carries has increased from 300 in 4Q11 to 400 in 3Q12.

Valuations

We derive our TP of S$0.53 pegged at 19x FY13F P/E  whichis -1SD of its historical mean trading  band  since  its  listing  on  the  SGX  on  4  Jan  2012.  This  provides  a  12%  upside coupled with a generous yield of 5-6%.

Source: OSK