SINGAPORE (Dec 23): RHB Group Research is staying “neutral” on the consumer and gaming sector and expects earnings in the sector to remain resilient in 2020.

However, slowing economic growth in the region, along with macro-economic uncertainties, could mean consumer spending will remain sluggish and limit the upside potential.

The Singapore government has predicted an economic growth of 0.5%-2.5% for Singapore in 2020.

In a Dec 19 report, analyst Juliana Cai says, “While the slow growth and challenging macro-economic environment should continue to dull sentiment, we think there are sufficient factors to support private consumption next year.”

Some of Cai’s factors include the upcoming general election which suggests an expansionary budget with potential for cash incentives to be given out, thus spurring consumption; low unemployment rate, barring an economic recession; and strong tourist arrivals.

Regionally, the analyst sees a mixed outlook for the next year.

This is especially for the stocks that have exposure to the Hong Kong market, such as Dairy Farm and BreadTalk. She expects such stocks to see ongoing earnings pressure, as the protests in the city disrupt retail operations and dim consumer sentiment. Tourism in Hong Kong is also expected to decline.

Nonetheless, RHB’s top “buy” picks for the sector are Sheng Siong and UnUsUaL.

RHB likes supermarket operator Sheng Siong as its growth story remain intact, with new store openings and market share gains should continue to drive Fy20 earnings. The analyst expects four new stores to open next year, while the six stores opened in FY19 should continue to ramp up and enable the company to deliver about 10% earnings CAGR during 2020-2021.RHB has a target price of $1.39 on Sheng Siong.

As for concert promotions and events production leader UnUsUaL, the stock has grown since listing into an entity with FY19 earnings of $13.2 million, representing a CAGR or 53%. Given more entertainment opportunities ahead, this should help grow a conservative FY20- 22 NPAT CAGR of over 20%. The share price has also corrected significantly to a reasonable valuation. RHB has a target price of 42 cents on UnUsUaL.

“Currently, we are neutral on most of the large-cap consumer stocks due to tepid earnings growth profiles and fairly-priced valuations. However, we think there is potential for a share price re-rating for Thai Beverage (Thaibev) and Genting Singapore (GENS) on event-driven catalysts,” says Cai.

Thaibev in November said that it is considering to list its brewery business in what could be the biggest listing in Singapore in close to a decade. While this is still at early stages, the analyst believes that a spin-off of this unit could help unlock value and improve gearing.

See: ThaiBev said to consider IPO of US$10 bil brewery business: Update

GENS is also said to be the front runner in a bid for an integrated resort (IR) in Osaka. The group is also preparing for another IR big in Yokohama.

RHB has a “neutral” call on Thaibev with a target price of 95 cents, as well as a “neutral” recommendation on GENS with a target price of 97 cents.

As at noon, shares in Sheng Siong are trading at $1.22; UnUsUaL at 29 cents; Thaibv at 89 cents; and GENS at 93 cents.