Shares of Singapore supermarket chain Sheng Siong Group declined significantly on Wednesday, closing 4.2% lower at S$2.73 after an earlier intraday drop of 6%. The sell-off followed a rating downgrade from OCBC Investment Research, which moved its recommendation from a more positive stance to "hold."
Valuation Concerns Ahead of Earnings
Analyst Chu Peng at OCBC highlighted that the stock's valuation appears stretched as the company approaches the release of its full-year 2025 financial results on March 2. She pointed to a 12-month forward price-to-earnings ratio of 24.8 times, which is notably higher than the historical average of 19.6 times.
Despite the downgrade, OCBC raised its fair value estimate for Sheng Siong to S$2.89, up from S$2.77. The bank attributed this increase to a lower assumed cost of equity, reflecting the return investors currently expect from holding the stock. Chu maintained her existing earnings forecasts but indicated she is awaiting further insights from the upcoming results.
Defensive Appeal Amid Economic Cooling
The report acknowledges Sheng Siong's status as a defensive stock, which tends to be resilient during periods of economic slowdown and elevated inflation. Chu suggested that tighter household budgets could drive consumers toward more value-oriented grocery retailers. She also cited supportive factors like Singapore's 2025 budget measures, including Community Development Council (CDC) vouchers, and the S$5 billion Equity Market Development Programme aimed at boosting trading activity.
Supporting the defensive thesis, Singapore's retail sales rose 2.7% year-on-year in December 2025, with supermarket and hypermarket sales increasing 4%. OCBC projects retail sales growth to remain in the 2-3% range for 2026.
However, the downgrade serves as a caution that even defensive stocks can become overpriced. OCBC noted that Sheng Siong's stock surged approximately 60% in 2025, far outpacing the Straits Times Index's 23% gain. The broker believes much of the positive outlook is already reflected in the current share price, leaving limited room for upside unless the forthcoming earnings report delivers strong new catalysts.