We came away from the Group's 3Q12 results briefing with some positive takeaways: 1) Despite growing retail space by +15% by end of this FY12, management is confident of achieving +10% next year in line with our estimates. 2) Capex this year has been lower than expected due to the takeover of five rival supermarkets out of its eight new store openings, 3) New 24-hour Geylang store has outperformed, achieving operational profitability from day one, 4) We expect 90% dividend payout. Maintain BUY with a TP of S$0.53, pegged to 19x FY13F P/E (-1SD from its historical mean trading band).

Capex lower this FY12 due to takeovers of rival stores. Management has previously guided capex per store to be in the range of S$1-1.5m for every 10k sf but for the six new stores opened this year, capex has amounted to less than S$5m. This is due to the takeover of rival supermarkets hence lower renovation costs. Out of the eight to be opened this year, four will be through a takeover of Shop N Save stores (Thomson Imperial, New World Centre, Bedok North & Yishun) and one NTUC store which is the Bukit Batok location.

Selective enbloc locations represent good catchment areas. Management highlighted Tanglin Halt, a current enbloc location to be a good catchment area. Old lower density blocks are being brought down and being replaced by higher density blocks which will increase the population density of these areas. Hougang, where the Group already has one outlet was also singled out as a good location with growing population.

First 24-hour Geylang store outperforms, achieving operational profitability from day one. We note that management was very happy with the outperformance of its first 24-hour store in Geylang. The store has achieved operational profitability since day one. Competition is slight in the area with more mom and pop stores lining the street.

HIGHLIGHTS
3Q12 earnings rose 48% yoy to S$9.8m. We note that there were IPO expenses incurred during 3Q11 hence earnings growth should be at a much higher rate, driven mainly by new store openings and same-store-sales growth.

Source: OSK