In addition, citing plans laid down by Andrew Lim, Macrovalue’s co-founder chairman, there will be six new Cold Storage outlets here in Singapore, which is interpreted by the analysts as a continued emphasis on the premium grocery format this brand is known for. Also, Macrovalue’s target to go for an initial public offering in 2028 means it will prioritise “meaningful” earnings turnaround instead of sparking unsustainable price competition, the analysts say.
This means Sheng Siong, with its established presence here in Singapore as the third-largest supermarket chain, will not be under major threat from Macrovalue. Rather, Sheng Siong can tap its inherent advantages and focus on growing its network further and generating better earnings.
Specifically, the company has opened six new stores in FY2024 and will be opening 10 new ones this current FY2025, driving both revenue and margin growth over the next two to three years.
Traditionally, Sheng Siong’s growth has come from securing new sites within Singapore’s public housing estates. It is exploring private site opportunities and eyeing asset acquisitions in a bid to grow further. In addition, Sheng Siong should also benefit from the $1.1 billion in SG60 supermarket vouchers to be distributed in July, lifting industry-wide demand.
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According to the DBS analysts, Sheng Siong has not bothered with extensive investments in e-commerce platforms and marketing — other than sponsoring a long-running game show with prize money at just $2 million a year, or 0.1% of its turnover. “Despite this underinvestment, it remains highly relevant to domestic consumers due to its established brand, strong focus on fresh produce, which is less exposed to e-commerce disruption or cross-border purchases in Johor Bahru and commitment to offering the best value,” they add.
In particular, Sheng Siong enjoys margin superiority over market leader NTUC FairPrice, which the DBS analysts say is due to a more efficient supply chain and “sharper” pricing. FairPrice faces higher depreciation as a percentage of sales, partly due to its larger presence in malls, which typically have higher rental rates than Sheng Siong’s dominantly HDB presence.
Sheng Siong also benefits from a single centralised distribution centre, while FairPrice’s broader mandates, such as food security, may require more diversified sourcing, thereby reducing economies of scale. In addition, FairPrice has been actively investing in e-commerce and loyalty infrastructure, which likely adds further to its cost base, according to the analysts.
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If Sheng Siong can have its way, the operating margin may improve further with upcoming supply chain investments. Chee and Sim note that Sheng Siong’s current distribution centre may be nearing capacity, given its current store network. Therefore, more investments in supply chains are needed. Bulk purchases, lower warehousing costs and improved labour efficiency can then help, but might be offset by higher depreciation. “Net-net, given the company’s solid execution track record, we believe operating margins should remain healthy and above peers — likely sustaining at the 8%–9% range,” say Chee and Sim.
While the DBS analysts have kept their earnings forecast, they argue that Sheng Siong deserves a higher premium because of its “industry-leading” ebit margin of 10.9% versus the median of 3.8%. They believe Sheng Siong deserves to trade at least at the 75th percentile among peers, leading to a higher target price of $2.30, up from $2, based on 20.9 times on FY2026 earnings, up from a previous multiple of 19 times.
“In today’s volatile macroeconomic environment, we believe investors will continue to assign a higher valuation to well-managed, stable companies like Sheng Siong,” say Chee and Sim.
