[SINGAPORE] DBS Research Equity on Tue (Jun 10) raised its target price for Sheng Siong to S$2.30 from S$2 on the back of strong earnings growth and resilient margins despite a volatile macroeconomic environment.
The brokerage also maintained a “buy” rating, with the revised target implying a 25 per cent upside from its last traded price of S$1.84 on Thursday.
Bank analysts Chee Zheng Feng and Andy Sim noted that the supermarket operator had managed to achieve “industry leading margins through a no-frills, disciplined investment approach”.
Sheng Siong had one of the leanest cost structures among grocery retailers globally, they added. It still remained relevant to domestic consumers despite minimal investments made in marketing, e-commerce platforms and membership programmes – in contrast to its peers.
For instance, DBS noted, it held a margin superiority over NTUC FairPrice with supply chain efficiency and sharper pricing. Sheng Siong would also benefit from having a single centralised distribution centre as compared to NTUC’s diversified sourcing.
Furthermore, in light of the supermarket operator’s projected store network expansion, DBS also expects to see earnings growth.
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Already, in its first quarter ended Mar 31, Sheng Siong recorded a 6.1 per cent increase in net profit to S$38.5 million. Its revenue grew 7.1 per cent to S$403 million, from S$376.2 million in the corresponding period the previous year.
These gains were contributed by the eight stores which opened in the quarter and in FY2024. There are six additional locations secured and scheduled to open in its third quarter, and the group is awaiting the results of another four tenders.
“Sheng Siong has maintained stable margins in 1Q25, reflecting good cost control and gross margin improvement through better economies of scale and procurement efficiencies,” noted Chee and Sim, amid investor concerns about the sustainability of operating margins with rapid expansion.
The analysts added that network expansion will drive both revenue and margins over the next two to three years.
The company is exploring private site opportunities and asset acquisitions outside its usual approach of setting up shop within the heartlands.
While only one supermarket is expected to open in a new Build-To-Order estate in 2026, the DBS analysts still expect the influx of new households into these new estates to contribute S$69.3 million in incremental revenue.
DBS also foresees the S$1.1 billion in SG60 supermarket vouchers to lift industry-wide demand.
DBS raised its target price-to-earnings ratio to 20.9 times, from 19 times for FY2026 on Sheng Siong’s stable growth prospects.
Said the analysts: “In today’s volatile macroeconomic environment, we believe investors will continue to assign a higher valuation to well-managed, stable companies like Sheng Siong.”
