SINGAPORE (Apr 22): As Singapore announced yesterday that it will extend the existing circuit breaker from May 4 to June 1, as well as the closure of more non-essential businesses, analysts are now even more bullish on supermarket stocks.

See also: Supermarkets are in; retail is out

Following these new measures, consumer spending is likely to shift further towards meals and supermarkets and away from snacks, beverages and dessert outlets, since these outlets are to be closed.

In a Wednesday report, DBS Group Research analyst Alfie Yeo says, “We expect supermarkets to benefit further on the extended circuit breaker period; even more people staying home; as well as substitution effect with the narrower food options and restrictions on wet markets.”

Meanwhile, consumption is also likely to switch from locally manufactured/outlet produced food to imported/packaged snacks, desserts, and beverages available in supermarkets.

On the back of this, DBS has Sheng Siong and Dairy Farm as its top “buy” picks within the Singapore grocery retail space.

However, the research house has downgraded its call on Koufu to “hold” given lower footfall at its foodcourts due to the circuit breaker. An extended circuit breaker is also not positive for Jumbo. Hence, DBS is avoiding the restaurant sector for now.

CGS-CIMB Research also shares similar sentiment on the issue, as it remains positive on both Sheng Siong and Dairy Farm amid the circuit breaker extension.

CGS-CIMB analyst Lim Siew Khee says, “Supermarkets will be able to continue their operations under extended circuit breaker period as they are considered an essential service. We estimate Sheng Siong will reap an additional $0.8-0.9 million in levy rebates for May from the extension of enhanced JSS. Sheng Siong with its estimated 35-40% foreign labour workforce could also receive at least another about $0.8-0.9 million of rebates (1-1.2% of net profit) from the extension of foreign worker levy, in our view.”

CGS-CIMB also has a negative stance on Jumbo, as the group is likely to be impacted more significantly by the circuit breaker measure, compared to mass-market dining options including food courts and coffee shops.

“With the extension of circuit breaker measure, we see the likelihood of further same store sales growth (SSSG) assumption cuts. Given that most of its operating expenses are relatively fixed, the operating deleverage from extended circuit breaker measure could cause significant earnings impact for FY20,” says Lim.

Fitch Solutions also noted that NTUC Fairprice, Giant and Sheng Siong (the three largest MGR retailers in Singapore), saw huge crowds when Singapore's alert level went into orange, and queues formed during the initial few days of work stoppages.

Fitch also believes that during a period of pandemic consumers will re-focus their spending toward priority purchases (food, drink and health).

Supermarkets aside, Fitch also believes that over the counter medicine sales as well as those of other vitamins and supplements will increase, given the increased health awareness of the population during a pandemic.

“We highlight that local and foreign owned pharmacies such as Watsons, Guardian and Unity's retail operations are allowed to continue,” says Fitch in its Tuesday report. Guardian is owned by Dairy Farm, who also owns Cold Storage and 7-11.

Overall, Fitch projected that real household spending will grow by just 1.8% y-o-y. This is a downward revision on its pre-Covid-19 2020 consumer spending growth outlook of 3.8% y-o-y, and down also from an estimated growth of 3.6% y-o-y in 2019.

In line with Fitch’s consumer outlook revision, it has revised down Singapore’s economic growth outlook. Real GDP is now projected to contract sharply by 2.8% y-o-y, down from the pre-Covid-19 forecast for 2020 of a growth of 1.7%. and the 0.7% y-o-y growth recorded in 2019.

As at 1.18pm, shares in Sheng Siong are trading at $1.48; Dairy Farm at US$4.67; and Jumbo at 24 cents.