SINGAPORE (Dec 19): DBS Group Research is keeping the Singapore consumer goods sector at “overweight” ahead of a projected 8.6% earnings growth in FY2017F.

This is on the back of companies’ exposure and growth outside of Singapore, says DBS lead analyst Andy Sim.

The growth will be “underpinned largely by expectations of a continued pick-up in consumer sentiment in regional economies, such as Thailand and Indonesia,” says Sim.

Meanwhile, domestic demand in Singapore is expected to remain “relatively lacklustre” due to subdued GDP growth and macro uncertainties.

Based on 3Q16 results posted by Singapore-listed consumer companies, performance has been generally robust arising from gross margin expansion,” Sim says.

In addition, potential acquisitions by several companies that have available cash and debt resources could provide a boost to growth.

Here are DBS’ top four stock picks for the sector, which the research house says are centred around “growth, earnings resilience and value”.

“We see Thaibev in a transformational mode to morph into a regional player,” says Sim. “Its earnings momentum, coupled with its ongoing transformation into a regional beverage player, will aid in further rerating of the counter.”

In addition, the corporate restructuring of Thaibev’s associate FNN, together with its expansion into the Indochina region, could further boost earnings.

DBS is keeping Thaibev at “buy” with a target price of $1.13.

As at 3.13pm, shares of Thaibev are trading 1 cent lower at 86 cents.

Sheng Siong
Despite store closures expected in 2017, DBS says it likes Sheng Siong for its “earnings growth traction, efficient operations, strong ROE, defensive earnings qualities, dividend yield and net cash balance sheet”.

Sheng Siong is also expected to see continued margin expansion.

DBS is keeping Sheng Siong at “buy” with a target price of $1.19.

As at 3.13 pm, shares of Sheng Siong are trading 2 cents lower at 91 cents.

“We like Jumbo for its rapid growth in China, close to 30% ROE in FY16F, relatively higher margin than peers, cash generative business, and strong net cash balance,” says Sim.

Apart from China, joint ventures and franchise partnerships elsewhere in Asia is also expected to add to earnings growth.

DBS is keeping Jumbo at “buy” with a target price of 77 cents.

As at 3.13pm, shares of Jumbo are trading 1 cent higher at 63 cents.

Courts Asia
DBS believes that Courts is a “earnings recovery and value play”.

Earnings are expected to recover on the back of better cost management and margins, according to Sim.

“We forecast top line to remain robust driven by accelerating GDP growth, store expansion and consumer sentiment recovery in Malaysia and Indonesia,” Sim says.

In addition, Courts’ focus on bundled value-added services and cost management will help improve margins and reduce operating expenses.

DBS is keeping Courts at “buy” with a target price of 50 cents.

As at 3.13pm, shares of Courts Asia are trading half a cent higher at 45 cents.