Sheng Siong Group: Headwinds Loom as Target Price Lowered to S$2.75 November 12, 2026
Company Overview
Sheng Siong Group delivered third-quarter 2026 results broadly in line with expectations. Nine-month revenue and net profit after tax and minority interests (PATMI) came in at 76 per cent and 74 per cent, respectively, of Phillip Securities Research’s full-year 2026 forecast. Third-quarter PATMI rose 2 per cent year on year to S$44.6 million, while revenue grew at a slower pace of 6 per cent year on year, with store closures shaving off 2 percentage points of revenue. Staff costs continued to outpace revenue growth owing to progressive wage requirements and competitive pressures.
Investment Positives
Improving Gross Margins
The standout positive in the our assessment is the continued improvement in gross margins. Gross margins extended their upward trajectory with a 0.7 percentage-point year on year improvement to 32.3 per cent in the third quarter. We attribute this gain to scale advantages in the fresh produce segment and more benign competition, which have enabled the group to extract better margins from its operations.
Long-Term Market Share Trajectory
Looking beyond the near-term headwinds, we note that the longer-term trajectory remains positive. The group has been consistently gaining market share in the grocery market, a trend that supports its competitive positioning over time. This structural advantage should serve the company well as it continues to scale and benefit from operational efficiencies.
Active Store Pipeline
On the expansion front, three Housing and Development Board (HDB) tenders and one Singapore Land Authority (SLA) tender are still awaiting results, providing potential catalysts for store network growth. Beyond these public tenders, additional new stores are under discussion through several private leases. These opportunities, if realised, could provide an avenue for revenue growth.
Indirect Impact from Middle East Conflict Well Managed
The impact from the Middle East conflict has been indirect, largely manifesting through diesel costs, supplier prices, and longer lead times. We note that the company has managed this disruption effectively, suggesting resilience in its supply chain operations.
Investment Challenges
Slower Sales Momentum
The principal challenge identified is a deceleration in sales momentum. Same-store sales growth slowed from 2.7 per cent in the first half of 2026 to negative 0.5 per cent in the third quarter. We point to a base effect from SG60 voucher spending in the prior year as a contributing factor. Revenue was further dragged down by two store closures — Elias Mall in March 2026 and Thomson Imperial Court in September 2026 — which reduced revenue by 2.1 percentage points.
Rising Electricity Costs
A significant headwind is the anticipated doubling of electricity costs from contract renewals in the financial year 2027. We estimate that this increase will shave 1 to 2 percentage points off margins next year, representing a material drag on profitability.
Operating Cost Pressures
Operating leverage remains a challenge as staff costs and energy costs are climbing faster than revenue. Progressive wage requirements and competitive labour market pressures continue to push personnel expenses higher, while the expected surge in electricity prices compounds the cost burden. These dynamics constrain the group’s ability to translate revenue growth into commensurate earnings growth.
Sungei Kadut Distribution Centre
The S$520 million Sungei Kadut distribution centre is another consideration. Between 70 to 80 per cent of the capital expenditure will be incurred in financial years 2027 and 2028. While depreciation will only commence in the financial year 2030, pre-operating costs and lower finance income will weigh on near-term earnings. The project, once commenced, will also reduce the interest income currently earned on the group’s cash holdings
Limited Visibility on New Stores
Visibility on new HDB stores in 2027 is weaker, and the pipeline of new stores has not been disclosed. This uncertainty makes it difficult to assess the pace of network expansion and its contribution to revenue growth going forward.
Outlook
Several headwinds are converging for Sheng Siong. Operating costs are set to rise faster owing to higher electricity prices and competitive wage pressures. Revenue growth will be partially offset by the lagged impact of store closures. The Sungei Kadut distribution centre will begin to absorb capital and reduce finance income before it generates operational benefits. Visibility on new store openings is limited. However, the longer-term outlook remains supported by the group’s consistent market share gains and improving gross margins.
Recommendation and Target Price
Phillip Securities Research maintains its NEUTRAL recommendation on Sheng Siong Group. The target price has been lowered to S$2.75, from the previous S$3.31. This reduction reflects a cut in the price-to-earnings valuation multiple from 28 times to 25 times financial year 2027 estimated earnings. We believe the valuation de-rating is warranted by the softer earnings expected in the financial year 2027. Full-year 2026 earnings estimates are maintained, but financial year 2027 earnings estimates have been lowered by 7 per cent.
Frequently Asked Questions
Q: What is Phillip Securities Research's recommendation for Sheng Siong Group?
A: Phillip Securities Research maintains a NEUTRAL recommendation on Sheng Siong Group.
Q: Phillip Securities Research maintains a NEUTRAL recommendation on Sheng Siong Group.
A: The target price has been lowered to S$2.75, from S$3.31. This reflects a reduction in the price-to-earnings valuation multiple from 28 times to 25 times financial year 2027 estimated earnings, driven by softer earnings expectations for the coming year.
Q: How did Sheng Siong perform in the third quarter of 2026?
A: Third-quarter PATMI rose 2 per cent year-on-year to S$44.6 million. Revenue grew 6 per cent year-on-year, though store closures reduced revenue by 2.1 percentage points. Nine-month results were within expectations at 76 per cent (revenue) and 74 per cent (PATMI) of full-year forecasts.
Q: What is happening with gross margins?
A: Gross margins improved by 0.7 percentage points year-on-year to 32.3 per cent in the third quarter, driven by scale advantages in fresh produce and more benign competition.
Q: Why did same-store sales growth decline?
A: Same-store sales growth decelerated from 2.7 per cent in the first half to negative 0.5 per cent in the third quarter, affected by a base effect from SG60 voucher spending in the prior year and the impact of two store closures.
Q: How will electricity costs affect the company?
A: Electricity costs are expected to roughly double from contract renewals in financial year 2027, which the we estimate will shave 1 to 2 percentage points off margins.
Q: What is the Sungei Kadut distribution centre and how will it affect earnings?
A: It is a S$520 million distribution centre with 70 to 80 per cent of capital expenditure to be incurred in financial years 2027 and 2028. While depreciation begins only in financial year 2030, pre-operating costs and lower finance income will weigh on near-term earnings.
Q: What are the potential catalysts for new store growth?
A: Three HDB tenders and one SLA tender are awaiting results, and additional stores are under discussion through private leases. However, the pipeline of new stores has not been disclosed, limiting visibility.
This article has been auto-generated using PhillipGPT. It is based on a report by a Phillip Securities Research analyst.
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About the author
Paul Chew
Paul has more than 25 years of experience as a fund manager and sell-side analyst. He currently covers sectors such as healthcare, electronics, telecommunications, conglomerates, small caps, and strategy.
He graduated from Monash University and has completed both his Chartered Financial Analyst and Australian CPA programme.
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