SINGAPORE (Jan 4): In the opinion of RHB analyst Juliana Cai, consumer discretionary spending in Singapore is likely to continue being weighed down by persistent concerns over job security and stagnant wages – bringing consumer staples to the forefront of attention this year.

“We are more partial towards consumer companies that have consistently invested in productivity improvement… Consumer companies would also continue to face disruptions from the e-commerce trend. We believe spending on staples would be least impacted, with the high personal savings rate in Singapore,” comments Cai in a Tuesday report. 

Food and beverage (F&B) player BreadTalk as well as grocery retailers Dairy Farm and Sheng Siong hence have been named as RHB’s top “buy” picks in the consumer segment with target prices of $1.45, US$8.60 ($12.46) and $1.21 respectively.

Aside from being less vulnerable to a decline in consumer sentiment as well as to online competition, the research house also thinks these three companies could read higher profitability from improved operational efficiencies in 2017.

BreadTalk and Sheng Siong were able to reap higher operating margins over the last five years despite muted demand and tightening foreign labour policies, explains Cai, while Dairy Farm has “significant room for margin improvements” as it plans to roll out fresh food distribution centres for its hypermarket and supermarket segments across all markets.

“We maintain our preference in the consumer staples space as we think their earnings are more resilient in view of the uncertain macro-environment,” says the analyst.

“On top of resilient incomes, we also prefer companies that have shown track records or strong potential in improving operational efficiencies over the years,” she adds.

As at 10:30am, shares of BreadTalk and Dairy Farm are trading higher at $1.18 and US$7.25 while shares of Sheng Siong are trading at 92 cents.