CFA Society Singapore
SINGAPORE (Jan 4): RHB Research is maintaining its “overweight” rating on the Singapore consumer sector, against the backdrop of a global economic slowdown and uncertainty arising from trade tension between the US and China.
“We believe the consumer sector will outperform the [Straits Times Index], given its more defensive nature,” says analyst Juliana Cai in a Friday report.
According to a Nielsen survey released mid-Dec 2018, consumer confidence improved to a high of 98 points in 3Q18. However, it remains in the pessimistic zone, below the baseline of 100 points.
“Weighed down by slower economic growth and concerns on job security, we expect Singaporeans to be prudent spenders in 2019,” says Cai. “Although rental rates are expected to stay flattish in 2019, we think it will still not be an easy year for retailers as they grapple with slowing demand and the need to re-invent themselves to fend off competition.”
That said, the analyst believes companies with resilient earnings that could offer some decent growth could still be expected to do well.
RHB’s top picks for the sector are Sheng Siong Group, Delfi and Genting Singapore. The research house has “buy” calls on all three, with target prices at $1.27, $1.59 and $1.23, respectively.
“We favour companies that have made investments and are ready to reap these rewards this year,” says Cai.
For instance, Cai points out that Sheng Siong could see higher earnings growth in 2019 on the back of aggressive store expansion with 10 new stores opened in 2018. In addition, the expansion of its distribution centre is also expected to help to raise efficiencies and gross margin.
“Sheng Siong should see revenue and earnings growth ramp up,” Cai says. “Amidst market uncertainties, we like the stability that Sheng Siong offers.”
As at 2.53pm, shares in Sheng Siong are trading 1 cent higher at $1.08.
“When it comes to consumer goods, stick with solid brands,” say Cai. One of the companies she highlights is Delfi, the top confectionery player in Indonesia.
“We expect Delfi to benefit from upbeat consumer sentiment and continued traction in its core brand,” she adds. “On top of that, we believe the group is able to reap higher sales and efficiencies with the acquisition of the exclusive and perpetual licence for the Van Houten brand for key markets in Asia Pacific last year.”
As at 2.53pm, shares in Delfi are trading 1 cent higher at $1.31.
Meanwhile, Cai notes that Singapore’s tourism sector remains robust, with tourist arrivals growing by 6.6% y-o-y for 11M18.
The way Cai sees it, Genting Singapore could be a big winner from the growth, especially as visitor arrivals from Greater China, which grew 6% y-o-y, account for over half of GENS’ customers.
“We believe the stock is undervalued vs peers,” Cai says. “We also like Genting on a potential share price re-rating, should it win the bid for a casino licence in Japan.”
As at 3.11pm, shares in Genting Singapore are trading 1.5 cents higher at 98.5 cents.
“In view of a tumultuous year ahead with elevated pressures from slowing economic growth and trade uncertainties, we like the consumer sector for its defensive profile,” Cai says.