• Growth driven by upcoming BTO estates, with >SGD60mn annual revenue even with limited new supermarket tenders
• Macrovalue to prioritise premium offerings and profitability ahead of a potential IPO
• Maintain earnings growth forecast on stable industry outlook and strong competitive positioning
• Raised TP to SGD2.30, reflecting Sheng Siong’s industry-leading operating margins and its strong appeal as a resilient operator in today’s uncertain macro environment

Post-acquisition of Giant Malaysia from DFI, Macrovalue announced that it will be acquiring DFI’s Food business in Singapore (Cold Storage and Giant stores) for SGD125mn.

What will change under new ownership?

Field trip to JB reveals minor changes to Giant Malaysia under Macrovalue ownership. We visited three Giant Malaysia outlets in Johor Bahru—Mercato at Plaza Pelangi, Giant Leisure Mall, and Giant Southern City—to assess any strategic shifts following the Macrovalue acquisition. Our observations suggest minimal changes in store layout, with Mercato resembling Cold Storage in Singapore and the Giant outlets maintaining the traditional hypermarket format, similar to Giant Tampines. Compared to historical online records, the product mix appears largely unchanged. Hypermarkets continue to allocate around 30–40% of shelf space to non-grocery categories such as clothing and toys.

Giant Malls revamp still in the slow lane. Physical and online research indicate that the widely publicised initiative to revamp Giant hypermarkets into “Giant Malls” is progressing slowly. While our field trip covered only a limited portion of the overall store network, online reviews also point to minimal changes across the broader footprint. Notable updates over the past two years include (i) the downsizing of Giant Bandar Baru Ampang from two floors to one, (ii) the introduction of a new food corner at Giant Bandar Kinrara, and (iii) the reopening of Giant USJ within a parking lot. These examples suggest that the transformation remains incremental and localised, rather than a comprehensive store overhaul, with most reviews continuing to highlight the rundown condition of existing outlets.

No significant shift in pricing strategy under Macrovalue. To assess price competitiveness, we also visited Lotus at KSL and AEON Danga Bay. Our comparison indicates that, in line with standard retail competition landscape, Giant offers certain products at a discount and some at a premium, relative to competitors. A notable change is the phasing out of the Meadows house label, replaced by Macrovalue-branded products. 

Premium-focused strategy in Singapore likely to remain unchanged. We believe Macrovalue’s acquisition is unlikely to bring significant changes to Cold Storage (CS)’s strategy in Singapore, particularly given the continuity in leadership under DFI SG Food CEO, Mr. Lim Boon Cheong, and the minimal strategic shifts observed in Malaysia operations. Our view is further supported by recent comments from Macrovalue’s co-owner, Datuk Andrew, who indicated plans to open six new CS outlets in Singapore—underlining a continued emphasis on the premium grocery format.

One notable change could be the eventual discontinuation of the Meadows private label, mirroring developments at Giant Malaysia. While this may result in some loss of scale for DFI’s house brand operations, we believe the impact could be partially offset by reallocating production volumes to regional B2B channels.

Why did Macrovalue decide to buy DFI’s SG Food business?
Decision to acquire likely a function of valuation. Given the challenges outlined above, the business was ultimately sold at a price likely close to the value of its inventories, with minimal premium assigned to intangible assets such as branding. This mirrors Macrovalue’s earlier acquisition of Sogo Malaysia for a nominal sum, offering a built-in downside buffer even if turnaround efforts prove unsuccessful.

IPO target by 2028 underscores focus on profitability over price wars. While DFI may have theoretically pursued a similar exit route, its decision to divest early likely reflects a differing view—that the turnaround would be prolonged and require substantial additional investment. This divergence reinforces the importance for Macrovalue to avoid unsustainable price competition and instead focus on driving operational improvements and profitability. In our view, a meaningful turnaround in earnings will be critical to generating investor interest and securing a successful IPO.

Are supermarket margins in Singapore under threat?
Singapore’s industry remains resilient, supported by urban planning and voucher support schemes. The government has taken a strategic approach to supermarket placement, particularly within HDB estates, resulting in limited areas with a high concentration of supermarkets in close proximity. Additionally, the introduction of COVID-related and CDC vouchers, redeemable only at physical supermarkets, has likely contributed to a permanent shift in consumption patterns toward at-home dining. This is reflected in elevated supermarket sales volumes, while dining-out volumes continue to lag pre-COVID levels.

Supermarket concentration in Singapore still has room for growth compared to its closest peer city, Hong Kong. Despite Singapore’s increasingly dense supermarket network, it trails Hong Kong in terms of both supermarkets per km² and per capita.

Market expected to continue expanding with new BTO estates. While only one supermarket is expected to open in a new BTO (build-to-order public housing) estate in 2026, the influx of new households moving into these estates will contribute an estimated SGD69mn in incremental revenue. From 2027 to 2029, we expect a rebound in HDB-linked supermarket openings, with the number of confirmed new outlets ranging from 3 to 9 per year.

RTS’ attrition effect likely more limited relative to Shenzhen-Hong Kong corridor. As outlined in an earlier note, we anticipate some attrition impact from the JB-SG RTS link, though likely less severe than the Shenzhen–Hong Kong corridor. This is primarily due to reduced commuter comfort (e.g. standing in crowded trains) and limited infrastructure development in JB, including suboptimal public transport and retail mall experiences.

With DFI’s exit from SG Food, Sheng Siong remains the sole listed proxy for investors seeking exposure to Singapore’s resilient and stable supermarket sector. In the following section, we aim to address three key questions that are likely top of mind for investors.

How does Sheng Siong achieve such a superior margin profile?
Peer leading margins likely driven by superior operational efficiencies. We benchmarked Sheng Siong against Loblaw. We specially chose Loblaw due to it being largely a food retail business (~70% of revenue) in Canada with one of the highest gross margins (GM) at 31% and operating margins (OP) at 7% for its retail business. Our analysis indicates that Sheng Siong enjoys a 410bps net operational cost advantage over Loblaw.

Winning through a no-frills, disciplined investment approach. While detailed cost breakdowns are unavailable for Loblaw, we believe its higher cost base is likely driven by spending on marketing, e-commerce infrastructure, and membership programmes. In contrast, Sheng Siong’s marketing expenditure is minimal, centred primarily around its flagship “Sheng Siong Show,” which distributes around SGD2mn annually, just 0.1% of sales. The company also operates a basic e-commerce platform and does not run a loyalty programme, contributing to its lean cost structure.

Margin superiority over NTUC FairPrice largely due to gross margin advantages. Sheng Siong’s OP outperformance versus FairPrice appears primarily driven by stronger GM, likely the result of supply chain efficiency and sharper pricing. FairPrice faces higher depreciation as a percentage of sales, partly due to its larger presence in malls, which typically have higher rental rates than HDB outlets (see Chart 6 for waterfall chart). Sheng Siong also benefits from a single centralised distribution centre, while FairPrice’s broader mandates such as food security, may require more diversified sourcing, reducing economies of scale. In addition, FairPrice has been actively investing in e-commerce and loyalty infrastructure, which likely adds further to its cost base.

Is Sheng Siong’s far superior margin profile sustainable?
Established branding and stable purchasing behaviour underpin margin resilience. Sheng Siong has built strong brand recognition in Singapore, with its weekly “Sheng Siong Show” serving as a cost-effective marketing tool. Although COVID-19 accelerated online grocery adoption, Sheng Siong’s focus on fresh produce offers insulation, as consumers still prefer to select fresh items in-store. With fresh items being lightweight and stores located close to HDB estates, in-store shopping remains the norm. This focus on perishables also mitigates RTS-driven sales leakage, as cross-border purchases in JB typically involve non-perishables with larger price gaps, such as toothpaste, milk powder, and diapers.

Operating margin gap may narrow with upcoming supply chain investments. In response to a question raised during its recent AGM, management indicated that one avenue of its use of cash is on supply chain investments. Sheng Siong’s current distribution centre may be nearing capacity, given its current store network. As its store network expands, supply chain investments will likely be necessary. This could support gross margin expansion through bulk procurement opportunities, reduce third-party warehousing costs, and improve labour efficiency. However, these gains may be offset by higher depreciation. Net-net, given the company’s solid execution track record, we believe operating margins should remain healthy and above peers—likely sustaining at the 8–9% range.

Is there more upside to Sheng Siong post recent share price run-up?
Headroom for re-rating relative to global peers. Our analysis of developed market peers reveals a moderate correlation (R = 0.56) between forward P/E ratios and operating margins. Given Sheng Siong’s industry-leading operating margin, we believe it deserves to trade at least at the 75^th percentile among peers. Reflecting this view, we raise our target price to SGD2.30, based on a 20.9x on FY26F earnings.