SINGAPORE (June 22): RHB Research is remaining optimistic on the consumer sector in Singapore this year, as consumer spending is expected to rise on the back of strong economic growth and an improved job outlook.
According to analyst Juliana Cai, retail sales excluding motor vehicles has edged up by 0.7% in April and by 2% year-to-date.
“Retail sales are largely a function of consumers’ ability and willingness to spend. We believe robust growth in consumer durables category shows that consumers are more confident about the future,” says Cai in a Friday report. “Over the next two quarters, we believe the sector’s outlook remains bright with positive drivers from demand and supply.”
In addition, Cai believes key events this month such as the 2018 Fifa World Cup and the Great Singapore Sale (GSS) would also help drive consumer spending.
As such, RHB is keeping its “overweight” call on the Singapore consumer sector, and names Sheng Siong Group and Food Empire Holdings as its top picks.
“As a largely pure Singapore play, [Sheng Siong] is likely to benefit from the uplift in domestic spending and new store openings. The refreshed image at its outlets in new housing estates would also help attract new target consumers – the millennials,” Cai says.
“It would also enjoy margin expansion, as consumers purchase higher quality and higher value products such as fresh produce, which generate higher gross margins,” she adds.
RHB has a “buy” recommendation on Sheng Siong with a target price of $1.18.
As at 1.01pm, shares of Sheng Siong are trading 1 cent up at $1.01, implying a price-to-earnings (P/E) ratio of 20 times and a dividend yield of 3.7% for FY18.
“We also like Food Empire, an instant coffee mix player,” says Cai. “We see Food Empire’s efforts in diversifying outside of core Commonwealth of Independent States’ (CIS) markets blossoming over the years.”
“Growth should be driven by improved sales and profitability at the food ingredients business, as it ramps up utilisation at the second snack line,” she adds.
RHB has a “buy” call on Food Empire with a target price of $1.07.
As at 1.01pm, shares of Food Empire are trading flat at 65 cents, implying a P/E ratio of 11 times and a dividend yield of 1.6% for FY18.
