SINGAPORE (Jan 6): Retail sales in Singapore saw an overall drop in 2019, but the F&B and online components of retail sales saw some growth.

The online proportion of retail sales now stands at 6% compared to 4% at the beginning of 2018, while F&B sales growth was driven by restaurants, fast food and other eating places. Bucking the non-F&B food service retail sales declining trend were supermarket and apparel sales.

In a Monday report, lead analyst Andy Sim says, “Based on our coverage of Singapore’s downstream consumer sector, we are projecting that earnings will grow by about 10% in FY20F, on margin expansion and revenue growth of 6.5%. Companies under our coverage are expected to ring in productivity gains, better sales mix and a more efficient operational expenditure (opex).”

On the back of this, Sim remains more positive on companies that have more domestic exposure and expects margins to improve slightly on productivity initiatives along with more robust domestic-driven spending on consumer staples.

Meanwhile, he remains cautious on companies with significant exposure in China due to a potential slowdown and rising competition.

Taking into account the above, here are four stocks that DBS think are worth a “buy” within the sector:

  1. Thai Beverage
DBS has increased its target price on ThaiBev to $1.04 from 91 cents, premised on steady 11% growth in Fy20 net earnings; improved contributions from Sabeco and lower losses from non-alcoholic beverages; continued deleveraging from the group’s strong and stable cashflow; as well as potential monetisation of assets.

Following the group’s acquisition spree in the past few years, the market has been wary of the group’s high gearing, but Sim believes that the group’s management has termed out its borrowings and will be able to repay or refinance its obligations with stronger cashflows.

“We continue to remain positive on the counter and expect its regionalisation strategy to aid earnings growth and re-rate the stock price. Its acquisition of Sabeco seems to be bearing fruit with the robust growth seen in Sabeco’s 3Q19’s financial performance, while Grand Royal continues to post robust volume growth,” says Sim.

  1. Koufu Group
Food court operator Koufu will be opening two new foodcourts in FY20, including one in Macau. Its number of tea outlets in Singapore and Macau currently stands at 25 and is expected to reach 29 by end-2020, including the group’s first outlet in Malacca, Malaysia.

The group also has an integrated facility on the way and is expected to obtain its temporary occupation permit by 1H20.

Koufu’s 3Q19 results saw a net profit (excluding exceptionals) of $1.7 million, 19.4% higher y-o-y, in line with DBS’ estimates. This was led by a 6.6% increase in revenue and 37.3% increase in operating profit.

See: Koufu reports 16.2% increase in 2Q19 earnings to $7.2 mil on higher revenue

“We continue to like Koufu for its stable earnings, decent yield of 3.4%, decent cashflow generation, strong balance sheet, and steady store expansion plans,” says analyst Alfie Yeo in a Sunday report. He has an unchanged target price of 88 cents on the counter.

  1. Delfi Limited
In April 2018, Delfi acquired the exclusive and perpetual license and associated rights to the Van Houten brand. Van Houten went on to contribute US$3.5 million and US$11.5 million in 3Q19 and 9M19 respectively to Delfi’s total sales.

Meanwhile, the group’s premiumisation strategy is bearing fruit as SilverQueen, Delfi Premium, and Van Houten grew in excess of 20% y-o-y.

“Having previously revitalised its acquired brands Knick Knacks and Goya, we are positive on its initiatives with Van Houten,” says Yeo in a Nov 14 report, who has a target price of $1.51 on the stock.

  1. Sheng Siong
“We maintain our ‘buy’ recommendation for Sheng Siong (SSG) with a target price of $1.32 as we continue to see growth being driven by more new stores,” says Sim.

In 2019, the supermarket group opened up five new supermarket and has one more due to open in 1Q20. Its recently opened stores have also performed well.

Singapore’s retail sales for supermarkets have generally been positive this year. Hence, the analyst expects Sheng Siong’s growth to continue being driven by new stores. Its dividend yield is decent at 3- 3.5% with a potentially higher payout.