CGSI upgrades Sheng Siong to ‘add’; RHB raises target price on store outlook

[SINGAPORE] CGS International (CGSI) upgraded Sheng Siong Group to “add” from “hold”, citing a stronger-than-expected pipeline of new stores and sustained expansion in gross margins.

In a note on Tuesday (Mar 3), the research house raised its target price on the supermarket operator to S$2.97, from S$2.40. The move comes as Sheng Siong posted an 8.7 per cent rise in net profit for the full year ended Dec 31, 2025 to S$149.5 million, supported by a record number of new store openings.

Shares of Sheng Siong closed 0.8 per cent lower at S$2.61 on Tuesday.

CGSI analyst Meghana Kande highlighted that the group’s gross margin improved by 80 basis points year on year to 31.3 per cent in FY2025, the strongest uplift since 2021. This was driven by economies of scale from a larger network and an improved sales mix.

Looking ahead, CGSI believes operational efficiencies could drive a further 50 basis points of margin improvement annually over FY2026 and FY2027, helping to mitigate rising staff costs. Consequently, the broker raised its earnings per share estimates by 3 to 9 per cent for the forecast period.

The upgrade is underpinned by an aggressive expansion strategy. Sheng Siong ended 2025 with 12 new stores, beating CGSI’s expectations of 11.

Its management also identified nine upcoming tenders with the Housing & Development Board and expressed interest in opportunities within private malls. Accordingly, CGSI raised its new store forecasts to nine units for FY2026 and seven for FY2027, up from six and five, respectively.

However, Kande noted potential downside risks, including higher staff costs, stiffer price competition and rising construction costs for the group’s new distribution centre.

RHB also expressed a bullish view on the counter, maintaining a “buy” call and raising its target price to S$3.02 from S$2.72. Analyst Alfie Yeo pegged the new target to a price-to-earnings ratio of 25 for 2026, up from 23, citing positive fund flows that are expected to support Singapore market valuations.

Yeo also emphasised that the 12 stores opened in FY2025 will contribute a full 12 months of earnings in FY2026, acting as a key growth driver. However, he cautioned that slower-than-expected store openings or lower sales demand could pose risks.

DBS remains cautious

In contrast, DBS Group Research on Monday maintained a “hold” with an unchanged target price of S$2.60, arguing that positive tailwinds have already been priced in.

Analyst Chee Zheng Feng forecast growth to peak in the first quarter of 2026, supported by Chinese New Year and SG60 vouchers. However, he predicts this momentum will slow later in the year as Sheng Siong will be comparing its performance against a particularly strong period in 2025, while the closure of two outlets will further weigh on sales.

The bank’s research arm also trimmed the supermarket operator’s FY2026-2027 earnings estimates by 2 per cent, citing higher staff costs associated with the Progressive Wage Model. Chee noted that Sheng Siong’s management front-loaded wage increases in September 2025 to qualify for government subsidies, which he said will elevate near-term costs.

On expansion, he also warned that Sheng Siong might face stiffer competition in new estates, noting NTUC FairPrice’s “apparent willingness to bid aggressively” in recent tenders. However, he still sees opportunities for Sheng Siong to secure replacement sites from competitors exiting the market.