SINGAPORE (June 13): OCBC Investment is maintaining its “neutral” rating on Singapore’s consumer sector given a lack of broad-based improvement for the retail scene, as well as the continued expansion and growth of e-commerce players.

This comes even as local retail sales data for April registered slightly above consensus, with retail sales up 2.6% on-year on higher sales in discretionary segments like Department Stores and Watches & Jewellery.

“Against a backdrop of a relatively resilient labour market and better tourist arrivals in 1Q, while this overall set of data could suggest that consumer sentiments may be improving, the magnitude of growth for retail sales is not significant and we keep in mind that high operating costs remain a challenge for retailers,” explains lead analyst Jodie Foo in a Tuesday report.

While Foo believes the delay of Amazon’s entrance into Singapore may have “offered some respite to retail players here”, he points out how existing large e-commerce players such as Lazada and Reebonz have nonetheless been expanding their warehouse capacity to meet demand.

The analyst thus believes that for Singapore in particular, a lack of scale is likely to hinder smaller players from achieving optimal efficiency for their e-commerce supply chain operations, which may instead result in the erosion of their business margins.

With the challenging operating environment in mind, OCBC remains selective with “buy” calls for Sheng Siong Group and Thai Beverage with target prices of $1.15 and $1.01 respectively – as it notes that these companies have been focusing on initiatives to improve their productivity.

“An article by Bangkok Post back in May reported that Thai Bev had set up a subsidiary to use robots and other automated production technology and machinery in its warehouses and factories in efforts to boost efficiency. Recall that Sheng Siong has been rolling out its hybrid self-checkout system across its outlets, which aims to ease labour pressures and increase efficiency,” comments Foo.  

“We like Sheng Siong’s management strength and largely stable business, and despite the looming store closures, new stores sales and achieving an optimal level of revenue per square feet for its stores are also key factors to potentially sustain its earnings performance,” he adds.

As at 11.37am, shares of SSG and Thai Bev are trading flat at 97 cents and 88 cents respectively.