In anticipation of the opening of the Johor-Singapore Rapid Transit System (RTS) at end 2026, DBS Group Research analysts have named Frasers Centrepoint Trust J69U (FCT) and DFI Retail Group D01 (DFI) as their two picks out of their defensive retail names.
Analysts Geraldine Wong and Chee Zheng Feng have a “buy” call on both and a target price of $2.70 and US$2.70 ($3.64) each. However, they have a “hold” rating for Sheng Siong Group OV8 .
Wong and Chee note that the opening of the RTS could boost more outbound travel among Singaporeans to Johor Bahru (JB), as travel time will be cut to as low as 15 minutes.
With the weak Malaysian ringgit to Singapore dollar rate, Johor is a popular weekend destination for many Singaporeans. As travel time could potentially drop from more than an hour to about 15-30 min, day trippers to JB could potentially rise to as high as 700,000, about 32% rise from the 2024 peak.
However, this might be “more fad than trend”, the analysts say. The high number of day trippers count will likely depend on the continuation of price differentials in goods and services between Singapore and JB, which can be as wide a savings as 50%, depending on the type of consumption basket, they add.
The upcoming RTS will have a first hand impact on the food & beverage industry and service trades in Singapore, the analysts note. In their channel cheeks during a visit to JB, they found that cost savings came in the range of about 30%-50% for F&B consumption and services, which include haircuts, massages, facials among others.
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“Assuming retail spend of $100-$141 per pax per day (based on Malaysia Tourism Board numbers) and a 40,000 increase in daily travellers post RTS opening, we estimate an incremental annual retail leakage to JB of $1.5billion-$2.1 billion in the medium term,” Wong and Chee note.
Amongst the trade categories, they expect the “substitution effect” to be greater in F&B and service trades. Meanwhile, contrary to expectations, they hold a non-consensus view that the supermarket trade should remain resilient, given the inconvenience of lugging heavy items across the border and low absolute savings.
As such, the impact to retail sales will come from two sources — proximity and the trade sectors. The analysts see retail malls in the north of Singapore feeling the most heat, with trade sectors such as services and F&B the most impacted (about 38% total exposure for malls).
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“FCT’s Causeway Point may see near-term tenant weakness, which could be saved by higher traffic, as the mall serves as a key bypass point to the RTS. Its current share price is attractive at a about 5.5% yield ahead of a turn in interest rates,” say the analysts.
In addition, DFI remains a “buy” given its premium supermarket positioning in Singapore where it targets the less cost-conscious crowd, who is less likely to frequent JB. The group also has an extensive Guardian network in JB, which would offset some of the switching behaviour in Singapore, they add.
Meanwhile, due to the anticipated inconvenience of carrying groceries across the causeway, Wong and Chee believe that the overall impact from the RTS on Sheng Siong will be limited. “We continue to maintain our “hold” call, as we believe the company is fairly valued at about 4% FY2024 yield,” they end.
