Singapore retail staples sector shows continued strength: analyst

Top picks remain Sheng Siong (SGX: OV8) for its stable earnings growth.

Singapore’s grocery retail sector is showing continued strength, with RHB maintaining its “Overweight” rating on retail staples in its latest sector update.

The brokerage attributed its positive stance to the sector’s defensive nature, resilient earnings, and steady dividend payouts.

Top picks remain Sheng Siong (SGX: OV8) for its stable earnings growth, and DFI Retail Group (SGX: D01) for its ongoing earnings recovery driven by corporate restructuring.

RHB projects compound annual earnings growth of 10% for Sheng Siong and 13% for DFI through FY2027. The firm raised its earnings forecast for Sheng Siong after a strong first half in 2025, citing increased revenue and better gross margins.

Notably, new stores are now averaging 8,500 sq ft—significantly larger than earlier projections of 6,000 sq ft—boosting operating leverage and margin potential.

DFI, meanwhile, has kept revenue steady but delivered growth in underlying profit thanks to better performance from its health and beauty and home furnishing segments, as well as reduced drag from associates.

Its store rationalisation efforts and a recent staff right-sizing exercise are expected to support further earnings improvement. RHB noted no changes to DFI’s earnings forecast, stating that the company remains on track to meet core expectations.

Singapore’s retail sales data supports this optimistic outlook. From January to June 2025, supermarket retail sales averaged 127 index points—higher than the 2024 average of 124. This growth is underpinned by stronger consumer demand and the government's push for new public housing developments.

Estates like Kranji could open long-term opportunities for supermarket expansion, particularly benefiting Sheng Siong, which has a track record of aligning growth with HDB developments.

In terms of valuation, DFI Retail offers a 30% upside with a FY25F P/E of 17.1x and a 3.3% dividend yield, including a surprise special dividend of 44.3 US cents paid in 1H25.

Sheng Siong is seen as a dependable compounder, trading at 20.6x FY25F P/E with a 17% upside and a 3.4% yield. RHB highlighted its strong balance sheet, healthy cash flow, and efficient cost management as key strengths.

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