Sheng Siong Group

Price targets:

$1.39 BUY (RHB Group Research)

$1.32 ACCUMULATE (Phillip Securities Research) $1.32 BUY (DBS Group Research)

$1.37 ADD (CGS-CIMB Research)

DBS Group Research predicts that Singapore’s gross domestic product (GDP) will be lifted by 1.4% in 2020F, after signs of bottoming out with a 0.6% growth in 2019F. And this could bode well for consumer stocks.

Even though retail sales in Singapore recorded an overall drop in 2019, the brokerage notes that food and beverage (F&B) food service and supermarket sales had largely improved.

“Restaurants and fast food outlets have done well in recent months,” says lead analyst Alfie Yeo in a Jan 6 report.

Meanwhile, the online components of retail sales have also grown, and now stands at 6% of total retail sales, compared to just 4% at the beginning of 2018.

“Based on our coverage of Singapore’s downstream consumer sector, we are projecting that earnings will grow by close to 10% in FY2020F, on margin expansion and revenue growth of 6.5%,” Yeo says. “Companies under our coverage are expected to ring in productivity gains, better sales mix and a more efficient operational expenditure.”

The analyst remains more positive on companies that have more domestic exposure and expects margins to improve slightly on productivity initiatives along with more robust domestic-driven spending on consumer staples.

Meanwhile, he remains cautious on companies with significant exposure in China due to a potential slowdown and rising competition.

“We prefer stocks with clear growth strategies in the Asean region as well as stable earnings, strong cash flows or balance sheets, and attractive valuations,” Yeo adds. DBS’s top picks in the Singapore consumer sector are Thai

Beverage, Koufu Group, Delfi, and Sheng Siong Group.

The brokerage has increased its target price on ThaiBev to $1.04 from 91 cents, spearheaded by steady 11% growth in FY2020 net earnings as well as improved contributions from Vietnam’s Saigon Beer Alcohol Beverage Corp (Sabeco) and lower losses from non-alcoholic beverages.

Meanwhile, Yeo is also positive on Koufu on the back of the upcoming opening of two foodcourts in FY2020, including one in Macau.

The analyst notes that the group also has an integrated facility on the way, which is expected to obtain its temporary occupation permit by 1HFY2020.

“We continue to like Koufu for its stable earnings, decent yield of 3.4%, decent cashflow generation, strong balance sheet, and steady store expansion plans,” Yeo says.

At the same time, the analyst likes chocolate confectionery company Delfi for its attractive valuations amid an earnings turnaround.

“We expect its earnings growth to accelerate via margin expansion through premiumisation, and regional growth through higher penetration of the Van Houten brand,” Yeo says.

He adds that Delfi could be a potential takeover target, due to its dominance in Indonesia’s general trade channel for chocolate confectionery.

With supermarket sales dominating Singapore’s retail spending last year amid the slowdown in GDP growth, Yeo is also maintaining his bullish stance on Sheng Siong.

“We continue to see growth being driven by more new stores,” Yeo says, noting that the group had opened five new supermarket outlets in 2019, with another one due to open in 1QFY2020. —