Broker: CGS International
Date of Report: July 31, 2025

Sheng Siong Group: Is It Time for Investors to Take a Breather After a Strong Rally?

Overview of Sheng Siong Group’s Recent Performance

Sheng Siong Group (SSG), a leading grocery retailer in Singapore, has delivered impressive growth in the first half of 2025, with its share price rallying 29% year-to-date. Despite robust revenue expansion and margin improvements, CGS International has downgraded its rating from “Add” to “Hold”, indicating that much of the near-term upside may already be priced in.

Gross Margin Expansion Driven by Fresh Products and Efficiencies

– In Q2 2025, SSG’s gross margin expanded by 50 basis points year-on-year, reaching 31.4%. – The improvement was attributed to: – A rising sales mix from fresh goods, now in the high 40% range, with a target to hit 50%. – Increased procurement efficiencies, notably from greater direct sourcing and reduced reliance on middlemen. – House brands maintained their share at approximately 7.5% of sales in H1 2025. – Forecasts project gross margins at 31.2% in FY2025 and 31.4% in FY2026, up from 30.5% in FY2024.

New Store Openings Power Topline Growth

– Revenue growth in H1 2025 was 7.1% year-on-year, primarily driven by new store openings (+6.4%), while same-store sales remained flat (+0.1%). – A surge in customer demand coincided with the SG60 voucher payout in July 2025, valid until December 2026. – SSG added 7 stores year-to-date, with one more expected in August 2025. The company forecasts a total of 10 new store additions for 2025, matching 2018’s expansion pace. – Store openings in 2025 include locations in Ang Mo Kio, Edgefield Plains, Tengah Garden Walk, Sumang Walk, KINEX Mall, Punggol Central, Punggol East, and the upcoming Cathay Mall.

Overheads and Cost Pressures Loom

While topline growth remains strong, SSG faces several operational headwinds: – Staff count has increased to 3,800 (from 3,400 in early 2024) to support the expanding store network. – Rising rental rates add to cost pressures. The competitive tender environment was highlighted by a recent loss of the Towner Road site to a higher bid from a competitor. – The current distribution center is at full capacity, prompting the need for additional delivery vehicles and possible third-party logistics, which could further raise distribution costs.

Valuation and Rating: Downgraded to Hold

– CGS International maintains a target price of S\$2.21 for SSG, based on a 22x FY2026 price-to-earnings ratio, which is one standard deviation above the historical 2017-2018 average. – With the share price at S\$2.10, the implied upside is 5.2%. The stock’s significant outperformance this year prompted the downgrade to “Hold” as further gains are seen as limited in the near-term. – Potential upside could come from increased government wage support, while downside risks include higher staff costs due to labor shortages, margin pressure from a new distribution center, and intensifying price competition.

Financial Highlights: Growth, Profitability, and Cash Flow

Additional financial metrics:
Operating EBITDA margins are forecast to rise from 13.9% in FY2024 to 15.4% in FY2027.
Free cash flow to equity is expected to increase from S$178.2m in FY2023 to S$230.3m in FY2027.
Net cash per share is projected to rise from S$0.22 in FY2023 to S$0.32 in FY2027.
The dividend payout ratio remains stable at around 70%.

Competitive Landscape: Singapore and Regional Peers

SSG is benchmarked against several regional retail and grocery peers. Key comparisons include:

Other peers covered include Sa Sa International, Chow Tai Fook Jewellery, Cafe de Coral, China Tourism Group Duty Free, 7-Eleven Malaysia, Aeon Co Malaysia, Ramayana Lestari Sentosa, Aspirasi Hidup Indonesia, Mitra Adiperkasa, Sido Muncul, Puregold Price Club (Philippines), Robinsons Retail Holdings, CP All (Thailand), Berli Jucker, and Home Product Center.
The Singapore grocery retail sector trades at an average forward P/E of 19.9x (CY2025), with SSG trading at a premium relative to regional peers.
Regional averages vary significantly, with Malaysia at 19.1x, Indonesia at 10.3x, the Philippines at 9.7x, and Thailand at 15.7x.

ESG Initiatives and Sustainability Focus

– SSG achieved an LSEG ESG combined grade of C- in 2023. – Key sustainability initiatives include: – Partnering with local suppliers to support Singapore’s “30 by 30” food security goal. – Ensuring affordable, high-quality products for consumers, including a 1% counter-inflation discount (Jan-Mar 2024) and a 4% senior citizen discount extended to end-2025. – All 75 stores now use LED lighting, reducing lighting energy consumption by up to 80%. – Energy intensity increased to 0.276 megajoules per S\$ revenue in FY2024 (from 0.273 in FY2023). – Greenhouse gas emissions intensity rose to 0.065kg CO2e per S\$ revenue in FY2024 (from 0.055 in FY2023).

Shareholder Structure and Analyst Coverage

– Major shareholders: SS Holdings (29.9%), Lim Hock Chee (9.2%), Lim Hock Leng (9.1%). – Free float: 42.6%. – Consensus ratings: 7 Buy, 1 Hold, 0 Sell. – Analysts covering SSG: Meghana Kande and Lim Siew Khee.

Risks and Opportunities for Investors

– Upside risks: Potential government wage subsidies to mitigate rising labor costs. – Downside risks: Tight labor supply, increased competition for new retail spaces, higher distribution and logistics costs, margin pressure from new distribution center construction, and intensifying price-based competition.

Conclusion: Sheng Siong Group at a Crossroads

Sheng Siong Group has demonstrated solid execution in driving revenue and margin growth, capitalizing on store network expansion and operational efficiencies. However, after a strong share price rally and with mounting cost headwinds, the risk-reward profile has shifted toward caution. Investors are advised to monitor cost trends and competitive developments closely while keeping an eye on new government policies that could provide support for staff costs or other operational challenges.
For those seeking stable dividend yields and exposure to the resilient Singapore grocery sector, SSG remains a quality player, though significant upside from current levels may be limited in the short term.