Singapore Consumer - DBS Research 2016-03-24: Turning around

THAI BEVERAGE PUBLIC CO LTD Y92.SI SHENG SIONG GROUP LTD OV8.SI DAIRY FARM INTL HOLDINGS LTD D01.SI COURTS ASIA LIMITED RE2.SI SUPER GROUP LTD S10.SI

Singapore Consumer – Turning around

In our last issue, earnings largely disappointed for the quarter ended September 2015. For the recent quarterly results ended December 2015, earnings generally met or beat our expectations. This was also in part due to our low earnings expectations.
In particular, we have also upgraded our calls post results for OSIM, PETRA, COURTS and SUPER.

Valuations for most of these stocks have declined but yet with earnings which were in line or above expectations, we found the upside to our TPs to be sustainable.
SUPER and OSIM in particular performed well with OSIM now being offered to be taken private by its founder. We have since downgraded OSIM to HOLD following the share price surge.

The quarter's results saw four upgrades and slightly better sentiment going forward. Rates of earnings decline have typically slowed, while we have seen some signs of sequential revenue or margin turnaround.
Nonetheless, outlook is not excessively bullish as companies are cautious about the outlook.
From a valuation perspective, our Singapore consumer universe now trades at a more palatable 20x PE compared to three years ago.
We continue to expect earnings improvement going into 2H16.

We continue to advocate on stable earnings plays in SSG and THBEV. These two companies' fundamentals appear strong, and should support earnings going forward.
Given valuation decline and an anticipated turnaround in earnings for 2H16, we have turned more positive on COURTS.
We continue to find value in DFI as the company continues to improve efficiencies.

Growth for SSG will be driven by margin expansion and new stores. The stock also pays a dividend yield of 4%.
THBEV is looking to grow into a regional beverage player and we believe it has an advantage over its peers given its dominant position as the leading spirits player in Thailand. Near term, we expect core profit growth of 10% for FY16, aided by growth in Spirits, Beer and smaller losses from its Non-Alcoholic Beverage segments. There is also potential for corporate restructuring with the eventual consolidation of FNN as a subsidiary, and monetisation of its stake in Frasers Centrepoint Limited.

Valuations for COURTS and DFI are at -1.5SD of its 3-year mean and -1SD of its 8-year historical PE mean respectively. Going forward, we see turnaround of Malaysia business and narrowing losses for Indonesia supporting earnings turnaround for COURTS.
For DFI, we believe implementation of IT systems, stock procurement and distribution centres should bring about better efficiencies that will drive earnings growth in FY17F.

Alfie YEO DBS Vickers | http://www.dbsvickers.com/ 2016-03-24

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