Initiation of Coverage: Quality name but not cheap

Research evidence excerpt

Initiation of Coverage: Quality name but not cheap

further margin upside without risking its “everyday low price” positioning. Meanwhile, EPS (UBS, diluted) (S$)

structural cost pressures—including rising labour costs, tighter foreign labour policies From To % ch Cons.

and higher depreciation and operating expenses from the Sungei Kadut distribution 12/26E - 0.11 - 0.11

centre—are likely to weigh on profitability. As a result, we project EBIT margins to 12/27E - 0.11 - 0.12

decline from 11.2% in 2025 to ~10.3% by 2031E, highlighting a widening gap 12/28E - 0.11 - 0.12

between gross margin gains and operating cost pressures.

Bernice Chew

Analyst

What we could be missing

bernice.chew@ubs.com

Beyond continued HDB tender success, we identify ~6 viable private retail opportunities +65-6495 3507

that meet SHEN’s expansion criteria (Figure 6Oportunitiesforprivatespaceexpansion). The competitive environment also

Permada Darmono

appears favourable, with industry consolidation and retrenchment among smaller

players creating opportunities to capture vacated sites and market share. Based on our permada.darmono@ubs.com

sensitivity analysis, each store could contribute ~0.4% to annual sales growth, implying +65-6495 3137

a low- to mid-single digit uplift to medium-term revenues. Additional upside to our base

case could stem from productivity gains from automation and the new distribution

centre, while better-than-expected margin resilience could support earnings upgrades.

Valuation: DCF-based price target of S$3.40; Initiate with Neutral

SHEN trades at ~28x 2026E P/E, a premium to ASEAN peers (~15x), justified by its

superior margins, >20% returns and negative cash conversion cycle. Following its

c.88% re-rating, valuations are now broadly in line with developed peers (e.g.