DBS raises target price on Sheng Siong to S$3; expects earnings to ease once SG60 vouchers expire

[SINGAPORE] DBS Group Research analyst Chee Zheng Feng raised his target price on supermarket operator Sheng Siong to S$3 from S$2.80, on the back of a 28 times higher forward price-to-earnings ratio.

He believes 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.

But his note on Jul 30 also indicated how the group’s earnings growth is expected to ease, particularly after the S$350 million support of SG60 vouchers lapses after FY2026.

“(Sheng Siong’s) Q2 earnings remained strong (as expected), supported by new store openings and favourable sales mix,” he noted. “However, growth has begun to moderate, slowing from 12 per cent in Q1 to 11 per cent in Q2.”

The analyst therefore 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.

Still, 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.

“Our FY2027 forecast of five net new stores… factors in the possibility of one to two additional Housing & Development Board (HDB) store closures should HDB’s redevelopment plans proceed,” he said.

“Nevertheless, we nudge up our revenue and earnings forecasts… to reflect stronger-than-expected performance from newly opened stores based on the current track record.”

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.

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Sheng Siong H1 net profit rises 11.7% to S$80.8 million on improved sales mix

Capex spending is expected to peak in 2027 and 2028, too, when the bulk of construction and equipment costs for the centre are incurred.

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, he said.