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Stay home and 'buy' supermarket stocks: DBS

Samantha Chiew
Samantha Chiew • 2 min read
Stay home and 'buy' supermarket stocks: DBS
'Buy' supermarket stocks as consumers rush to supermarkets to stock up for the circuit breaker period.
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SINGAPORE (Apr 6): Singapore is imposing a one-month circuit breaker from tomorrow onwards until May 4 in efforts to slow the transmission of Covid-19.

This circuit breaker requires all non-essential services and schools to temporarily shut. Only essential services, such as supermarkets and F&B outlets will remain open, but only takeout and delivery will be available at F&B outlets, dining-in will be not be allowed.

The country is not locked down and remains in Dorscon Orange and not “Red”. The government emphasised that the “circuit breaker” is not about business closures, but closing of business premises.

As Singapore moves into the circuit breaker period tomorrow, DBS Group Research is remaining bullish on supermarket stocks, while avoiding higher end restaurants.

Retail sales in February declined by 8.6% y-oy (-10.2% excluding motor-vehicles). Supermarkets bucked the trend, growing strongly by 15.5% y-o-y. Discretionary sales plunged, with sales for watches & jewellery, department stores, and apparel & footwear falling between 23-41% y-o-y.

In a Monday report, analyst Alfie Yeo says, “This is positive for supermarkets and affordable mass market foodservices outlets. As people are encouraged to stay home as far as possible, we expect retail spending on food staples to strengthen further.”

With most workplaces and schools closed, the demand for eating at home will increase.

“We see a stronger shift of food consumption at workplaces and schools to homes during the next month. This will result in brisk sales at grocery retailers, F&B foodservice outlets near residential areas, and online channels,” adds Yeo.

However, some restaurant operators, especially those located in office areas, may suffer during this period as a significant number of Singapore’s workforce stays away from their workplace.

As a result, DBS has a “buy” rating on supermarket plays, such as Sheng Siong and Dairy Farm International (DFI), with target price prices of $1.45 and US$4.70, respectively.

Meanwhile, DBS recommends to avoid higher end restaurant operators, such as Jumbo. Earnings risks also prevail for Koufu as outlets at Marina Bay Sands and Macau are exposed to tourists, even though footfall at heartlands continue to be decent.

“For BreadTalk, we urge shareholders to accept the offer given that about half of operating profit is from the Din Tai Fung restaurant franchises in Singapore, Thailand and the UK,” says Yeo.

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