For its 1QFY206, Sheng Siong reported earnings of $43 million, up 12% y-o-y, revenue was up 12% to $452 million, in line with Yeo's estimates. Thanks to a better sales mix, gross margins improved by 0.7 points to 31.
Yeo's new target price is based on 28x blended FY2026 and FY2027 earnings on deeper and wider market penetration, up from an earlier multiple of 25x FY2026. "Growth outlook is positive, as Sheng Siong Group continues to penetrate the market with more stores," he says.
This year, the company has already secured three new outlets and is awaiting tender results for another five. Yeo expects Sheng Siong to bid for two more tenders in the next 6-12 months.
"For longer term, its new distribution centre will support more than 120 stores eventually. Finally, we believe that the Singapore market’s positive fund flows will provide tailwind and lift valuations higher over the medium term," he reasons.
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Yeo says his higher multiple of 28x, which is slightly above the Singapore grocery retail sector’s long-term average forward P/E valuation of 26x, is justified because of the pace at which Sheng Siong is growing.
Yeo notes that despite the Middle East conflict, Sheng Siong, with its diversified supply base, has not seen any hiccups. Neither will higher energy costs hurt its margins "strongly" as the company hedges. "In addition, suppliers have yet to increase prices," says Yeo.
For him, key downside risks to his earnings estimates 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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"We expect Sheng Siongs’s performance to remain resilient, as it targets the mass market value segment, which will enjoy effects of downtrading in a soft consumption environment," says Yeo.
Chu Peng of OCBC Group Research has kept her call at "hold" but has raised her fair value for Sheng Siong from $2.78 to $3.26, on the premise that this is a defensive business amid rising inflation and slower economic growth.
"Demand for groceries could be supported by a shift in consumption patterns towards a focus on value-for-money purchases due to inflationary pressures and a higher cost of living.
"Moreover, grocery sales could be supported by inflation-relief measures announced in Singapore Budget 2026, such as the CDC vouchers," she adds.
Chu, citing the management, says that Sheng Siong expects to maintain rational pricing unless its competitors turn aggressive.
Its suppliers have also flagged potential price hikes, but some are holding back given the weak consumer sentiment.
While consumer spending is cautious and prioritising daily essentials, sales should see "support" as the next tranche of $500 in CDC Vouchers, originally scheduled for Jan 2027, has been brought forward to June.
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Chu says Sheng Siong is now trading at a 12-month forward PE of 27.3x, around 3 sd above its historical average of 20.2x.
She has revised her earnings forecasts and raise fair value estimate to $3.26 to reflect a lower cost of equity assumption and higher terminal growth rate.
Chee Zheng Feng of DBS Group Research is a bit more cautious. He has, too, raised his target price but from $2.60 to $2.80. His call remains "hold".
Chee sees slightly improved earnings outlook and longer‑‑term growth optionality.
His new target price of $2.80 is pegged to a higher 26x forward PE, up from 24x, which is 2.5 sd above the five-year average.
"We believe the higher valuation premium is justified by a more conducive store network expansion environment, a rational competitive landscape, and increased investor appetite for defensive names amid heightened geopolitical uncertainty stemming from the ongoing Iran war," says Chee.
Sheng Siong shares closed at $3.09, up 1.64%.
