He also expects Macrovalue, the recent acquirer of Cold Storage and Giant, to give up unprofitable store locations, paving the way for Sheng Siong to open even more stores.
For the current 2QFY2025, Gan figures that even with higher staff costs, Sheng Shiong should still be able to improve its gross margins thanks to a skew towards higher-margin perishables and more efficient procurement. However, 2QFY2025 earnings might soften q-o-q due to the absence of Chinese New Year and Hari Raya festive sales boost and also higher staff costs needed to man new stores.
UOB Kay Hian's (UOBKH) Heidi Mo and John Cheong share a similar sentiment, as they kept their "buy" call along with higher target price of $1.97 from $1.92. They figure that with 50,000 build-to-order (BTO) flats slated for launch between 2025 and 2027, Sheng Siong is well-positioned to benefit from increased tendering opportunities for retail spaces. "We have raised our FY2025 store openings forecast from five to nine, along with an upward revision to our earnings forecast," write Mo and Cheong.
Catalysts for the share price include higher-than-expected new store openings and same-store sales growth, as well as stronger demand arising from the inflationary environment and GST hike.
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Similarly, PhillipCapital’s Paul Chew has maintained his "accumulate" call and raised his target price to $1.89 from $1.76. "We believe Sheng Siong is gaining share and scale as competitors turn more subscale. The capture of market share and new stores will offset the soft same-store sales by around 1%. Wage inflation remains the most significant cost challenge due to the tight labour market, especially for locals.”
DBS Group Research's Chee Zheng Feng and Andy Sim have kept their "buy" call, and upped their target price to $2.00 from $1.90. While they trimmed their EPS estimate for FY2025 by 1%, they have raised their FY2026 and FY2027 EPS forecast by 2% and 5% respectively with contribution from new stores. They have also raised their 1QFY2025 gross margin assumption upwards from 30.7% to 31.2%, due to stronger economies of scale.
Meanwhile, CGS International's Meghana Kande and Lim Siew Khee have kept their "add" call and target price of $1.90. They expect Sheng Siong to open a total of ten new stores in the current FY2025. "While we think upfront staffing and rental expenses for new stores could weigh on FY2025 earnings growth, we expect operating leverage to kick in from FY2026.”
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RHB Bank Singapore’s Alfie Yeo has kept his "buy" call and $1.98 target price. "We continue like Sheng Siong in the midst of market volatility over US tariffs. It has no export exposure to the US market."
Yeo sees that should a slowdown in domestic consumption materialise from slower economic growth, consumers could down-trade from the higher-end grocery retail to the mass market segment, thus benefiting the group. Key downside risks to his EPS estimates include slower-than-expected store openings, lower sales demand and the inability to maintain gross profit margins at current levels.
