While tourist arrivals and spending were a bright spot for the retail sector in the 2H2022, China’s reopening could be the trump card for the sector in 2023, giving it a “much-needed boost”.
“Based on 2019 data, we note that Chinese travellers typically allocate a bigger proportion of their travel budget on shopping and food and beverage (F&B), contributing [some] 28% of tourist receipts in comparison to the 20% of inbound tourist arrivals,” write DBS Group Research analysts Geraldine Wong and Derek Tan.
In 2022, the analysts expect Singapore’s monthly retail sales to surpass its pre-Covid-19 levels as locals outspend, more than offsetting the sales lost from tourists.
In the 9M2022, retail sales data stood 7.5% higher y-o-y despite the slow inflow of tourist receipts, especially in the first six months in the year, Wong and Tan point out.
That said, while domestic spending has “picked up the slack” from the lack of tourist arrivals, the analysts see the momentum slowing in 2023. This is “especially given a higher cost of living and mortgages biting into consumer wallets in a more meaningful way”.
“We reckon consumers may look to tighten their wallets, prioritising spending on necessities over discretionary goods (less dining out and more cooking at home!)” they write.
In their report dated Dec 8, the analysts see that the reopening trade is “not dead” and that investors should be looking at the retail sector with valuations near pandemic lows or at the -2 standard deviation (s.d.) levels.
To them, the counters’ yields remain “compelling” in the range of 6.1% to 9.0%.
On this, Wong and Tan have identified Frasers Centrepoint Trust (FCT) as one of its top sector picks for “necessity suburban spending”. Lendlease Global Commercial REIT (LREIT) has also been selected as another top sector pick for its Orchard exposure, while CapitaLand China Trust (CLCT) is their final pick as a direct China proxy.
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The analysts have given all three REITs “buy” calls with target prices of $2.60 for FCT, $1 for LREIT and $1.45 for CLCT.
They have also rated SPH REIT, Starhill Global REIT and Sasseur REIT at “hold”, “buy” and “buy” respectively with corresponding target prices of 96 cents, 68 cents and $1.15.
Units in FCT, LREIT and CLCT closed at $2.03, 71 cents and $1.14 while units in SPH REIT, Starhill Global REIT and Sasseur REIT closed at 88.5 cents, 53 cents and 74.5 cents respectively on Dec 12.
