The analyst’s target price increase also comes after Sheng Siong’s share price outperformance. Year-to-date (ytd), the group’s share price has gained 14%, outperforming the benchmark Straits Times Index (STI). Since Yeo’s last report in early May, Sheng Siong’s share price has risen by approximately 6%.
At the time, Yeo said that a global trade war would have added uncertainty to the market, resulting in investors moving towards consumer staples. He reiterates that the Singapore domestic business has limited direct earnings exposure to global trade war uncertainties.
“We believe the firm’s share price performance may have reflected a more risk-off stance by investors in their strategy to go overweight on defensive plays including Sheng Siong,” Yeo writes.
Favouring Sheng Siong for its earnings growth momentum, attractive valuation, strong cashflow generation, stable balance sheet and good dividend payout, Yeo has raised his FY2025 earnings by 4% and 6% each for FY2026 and FY2027, respectively. Having factored in a higher store count assumption from three to eight by the end of this year, Yeo has also lifted his revenue estimates by 2% for FY2025 and 5% each for FY2026 to FY2027, representing the partial year contribution for this year and the full 12-month contribution for the subsequent years for the new outlets. Yeo’s gross profit margins are lifted as well.
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Following his raised estimates, Yeo now projects Sheng Siong’s recurring net profit to be at $150 million, $159 million and $165 million respectively for FY2025 to FY2027. Sheng Siong’s financial year ends in December.
With the new target price, Sheng Siong’s recurring price-to-earnings (P/E) ratio is at 18.77 times in FY2025, and 17.66 times and 17.05 times in FY2026 and FY2027, respectively.
Key downside risks include slower-than-expected store openings, lower sales demand and per sq ft traction, and the inability to maintain gross profit margin at current levels.
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“However, we expect Sheng Siong’s performance to remain resilient as it targets the mass market value segment, which will enjoy the effects of downtrading in a soft consumption environment,” Yeo says.
As at 4.41pm, shares in Sheng Siong are trading 4 cents higher or 2.07% up at $1.97.
