SINGAPORE (Dec 17): DBS Vickers Securities is “overweight” on the consumer goods sector, on the belief that F&B and retail services in Singapore are likely to outperform other cyclical industries amid trade-war related uncertainties in 2019.
In a Nov 26 report entitled 2019 Outlook and Strategy, analyst Alfie Yeo that the consumer sector’s valuation – based on stocks under DBS’s coverage – is currently about -0.7 times below its five-year historical average at 21.7 times P/E.
This has prompted Yeo to seek defensive traits within the consumer space, with a preference for stocks with more resilient earnings, strong cash flows or balance sheets, and/or attractive valuations.
Sheng Siong is therefore among his top three sector picks, rated “buy” with a target price of $1.24 he anticipates growth on the back of new store openings, improving efficiencies and margins from a better sales mix, and a warehouse expansion that will kick in from FY19F.
“The near-term outlook for new HDB supermarkets remains robust with five outlets up for tender in the next six months. Dividend yield is decent at 3-3.5% with potential for a higher payout,” notes Yeo.
He also maintains his view that Thai Beverage (ThaiBev) is at, or nearing the bottom of its operational performance, which is expected to pick up in FY19 due to the upcoming elections and King’s coronation in Thailand.
While DBS has revised its target price for ThaiBev lower to 94 cents from $1.02 previously, it continues to rate the stock at “buy” on expectations of expected recovery with initial uptick in farm income.
“Based on our coverage of the Singapore downstream consumer sector, we are projecting that earnings will decline by c.4% in FY18F, largely on the back of weaker earnings from ThaiBev,” says Yeo.
“Barring a significant weakening in consumer sentiment, we believe operating margins could rise as start-up costs contract. We are currently projecting earnings growth for our downstream consumer coverage to be c.14% in FY19F, driven mainly by a rebound from ThaiBev’s soft FY18 earnings in the lead up to the Thai elections, and ramp up from new outlets opened in the past year (Sheng Siong, Jumbo).”
Lastly, DBS maintains its “buy” call on Koufu Group with a target price of 80 cents, and expects FY19F earnings to recover after declining slightly in FY18F.
While the research house is anticipating FY20-21F revenue growth to rise on new food courts in Singapore and Macau, it remains cognisant of the likelihood of higher operating costs and depreciation which would partially offset the increase in revenue – resulting in steady earnings of the projected period.
“Despite dark uncertainties over trade war, Singapore 2019F GDP is expected to grow at 3% driven by services sector… Over the longer term, our economist postulates that the ASEAN region could benefit from trade diversion arising from the current US-China tension,” concludes Yeo.
Shares in Sheng Siong, ThaiBev and Koufu last traded at $1.08, 60 cents and 59 cents respectively, prior to the midday trading break.
