SINGAPORE (Dec 11): RHB Research is maintaining its “neutral” call on the Singapore consumer sector, as decelerating economic growth and  macro-economic uncertainties threaten to tame consumer confidence and limit upside potential in the upcoming year. 

Citing the Singapore government’s forecast for economic growth of 0.5%-2.5% y-o-y in 2020, RHB analyst Juliana Cai acknowledges that this should continue to dampen consumer sentiment. However, Cai attests that all is not lost.

“We think there are sufficient factors to support private consumption next year,” says Cai in a Wednesday report. “The upcoming general election in Singapore suggests an expansionary budget with potential for cash incentives to be dished out to consumers, which could help propel consumption,” she adds. 

In addition, Cai opines that barring an economic recession in 2020, unemployment rates are expected to remain low, while tourist arrivals should remain strong given an increase in meetings, incentives, conferences and exhibitions (MICE) activities. 

“These will bode well for consumer companies with exposure to the Singapore market,” says Cai. 

However, the brokerage highlights certain areas of caution for the consumer sector. 

Firstly, Cai notes that stocks with exposure to the Hong Kong market are likely to bear the brunt of the ongoing earnings pressure, as protests disrupt retail operations and dim consumer sentiment. These include Dairy Farm and BreadTalk. 

Secondly, ASEAN countries could also experience more cautious consumer spending patterns on the back of slowing income growth prospects and weaker business confidence. But Cai remains bullish, nonetheless. 

“The key risk lies in the ability of governments to roll out adequate stimulus measures to support economic growth and domestic consumption. This is especially so for Thailand and Indonesia, where 2019 was a high base due to election spending, which propped up sentiment,” says Cai. 

On the whole, the brokerage is maintaining a neutral stance on most of the large-cap consumer stocks, due to lukewarm earnings growth profiles and fairly-priced valuations.

However, Cai believes that a share price re-rating is on the horizon for Thai Beverage and Genting Singapore. The former is evaluating the listing of its beer business, while the latter is one of the three bidders for an integrated resort (IR) in Osaka, Japan, and is preparing for another bid for an IR in Yokohama. 
 Both of these are what Cai terms “event-driven catalysts” which could unlock the value of the two stocks. 

RHB’s top picks for the sector for the coming year are Sheng Siong and UnUsUaL. The brokerage has “buy” calls on both stocks, with target prices of $1.39 and 42 cents respectively. RHB also likes Delfi and Food Empire on the back of “attractive valuations.''

For Sheng Siong, Cai hones in on the group’s ability to generate steady growth with new store openings. The maturing of its new stores are likely to bring about revenue growth for the group. In addition, Cai notes that the expansion of Sheng Siong’s distribution centre that was announced in 2017 is likely to drive higher gross margins for the group. 

“Yields of 3-4% and recovery of earnings growth support our positive view,” concludes Cai. 

The brokerage expects UnUsUaL to thrive as it ramps up its pipeline of concerts and family entertainment shows in 2020. 

Cai highlights how the group has an “easily scalable and niche business model” that is on track to deliver some 25% in growth for FY20F and FY21F amid a strong pipeline of events and concerts. 

Furthermore, RHB considers UnUsUaL an “attractive” target for mergers and acquisitions, “We believe it can also leverage on M&A to grow faster regionally,” says Cai. 

As at 1.23pm, shares in Sheng Siong are trading one cent lower, or 0.8% down, at $1.25, while shares in UnUsUaL are trading flat at 28 cents.