DBS Group Research analyst Chee Zheng Feng has raised his target price on Sheng Siong to S$3 from S$2.80, citing a higher forward price-to-earnings ratio. The market is now willing to accept a higher valuation premium of the counter, given the “scarcity value of a pure play”, resilience and well-managed nature as a defensive Singapore consumer name.
Sheng Siong‘s earnings growth is expected to ease, particularly after the S$350 million support of SG60 vouchers lapses after FY2026. The vouchers have provided a significant boost to the company’s sales, and their expiry is likely to impact the company’s revenue. As a result, the analyst expects the company’s earnings growth to slow down, especially in the second half of the year.
Second Quarter Earnings
Sheng Siong‘s Q2 earnings remained strong, supported by new store openings and favourable sales mix. However, growth has begun to moderate, slowing from 12 per cent in Q1 to 11 per cent in Q2. The company’s ability to maintain a strong sales mix has been a key factor in its earnings growth, and the analyst will be closely watching the company’s sales trends in the coming quarters.
The analyst expects a sharper slowdown in growth to be likely in H2 – potentially into a mid-single-digit range – due to a high base created by the SG60 vouchers, which account for 4 per cent of estimated total 2026 industry sales. The vouchers have created a challenging comparable base for the company, making it difficult to maintain high growth rates in the second half of the year.
Stock Rating and Forecast
Chee kept his “hold” rating on the stock, maintaining his FY2026 forward earnings forecast, and raising his FY2027 earnings expectations marginally by 0.5 per cent on stronger new store contributions. The analyst’s forecast for FY2027 takes into account the possibility of store closures due to redevelopment plans by the Housing & Development Board (HDB).
His FY2027 forecast of five net new stores factors in the possibility of one to two additional HDB store closures should HDB’s redevelopment plans proceed. The analyst’s forecast also reflects stronger-than-expected performance from newly opened stores, which has been a key driver of the company’s earnings growth.
The analyst also highlighted the group’s plans to invest a budgeted S$520 million in a new distribution centre slated for completion by end‑2029, designed to support at least 120 stores. The new distribution centre is expected to enhance the company’s operational efficiency and gross margins, partially offsetting the higher depreciation burden associated with the investment.
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Over time, the scale and advanced technology of the facility are expected to enhance gross margins and operating efficiency, partially offsetting the higher depreciation burden. The company’s investment in the new distribution centre is a key part of its strategy to drive long-term growth and improve its competitiveness in the market.
Investment and Efficiency
Capex spending is expected to peak in 2027 and 2028, when the bulk of construction and equipment costs for the centre are incurred. The company’s capital expenditure plans are likely to be a key focus area for investors, as the company balances its investment in the new distribution centre with the potential slowdown in earnings growth.
It’s likely that Sheng Siong will need to balance its investment in the new distribution centre with the potential slowdown in earnings growth, and the impact of the SG60 vouchers expiry on its sales. The company’s ability to manage its costs and maintain its operational efficiency will be key in handling this period of change.
The group’s plans to invest in the new distribution centre demonstrate its commitment to driving long-term growth and improving its operational efficiency. The company’s focus on investing in its infrastructure and technology is likely to pay off in the long term, as it enhances its competitiveness and improves its ability to respond to changing market conditions.
For now, the analyst’s target price increase and forecast adjustments reflect a cautiously optimistic view of Sheng Siong‘s prospects, despite the expected easing of earnings growth. The company’s strong track record of executing its strategy and delivering earnings growth has earned it a premium valuation, and the analyst expects this to continue in the coming quarters.
The analyst’s forecast adjustments also reflect the company’s ability to handle the challenges posed by the expiry of the SG60 vouchers and the potential slowdown in earnings growth. The company’s focus on driving long-term growth and improving its operational efficiency is likely to serve it well in the coming quarters, as it handles a changing market setting.