Consumer Sector - OCBC Investment 2016-06-24: Decline For Retail Sector Not Board-Based

SHENG SIONG GROUP LTD OV8.SI QAF LTD Q01.SI THAI BEVERAGE PUBLIC CO LTD Y92.SI DELFI LIMITED P34.SI BREADTALK GROUP LIMITED 5DA.SI

Consumer Sector - DECLINE FOR RETAIL SECTOR NOT BROAD-BASED

As we approach the end of 1H16, data points for the past few months have been reflecting a rather subdued local retail environment. Slowing sales and high operating costs continue to be a concern for retailers here while malls in certain regions face gradually higher vacancy rates.
The latest retail sales for Apr excluding motor vehicles declined 3% YoY, but we note that this is not a broad-based decline, with supermarkets rising 1.5% YoY for instance. In line with this view, companies like Sheng Siong Group, BreadTalk and QAF have been recording positive underlying performance for their operations in Singapore.

We have opted to stay cautious on Delfi. While the currency impact from USDIDR looks to be lesser this year, the economic momentum for its key market Indonesia is still deemed as sluggish.
According to Bank Indonesia (BI) and OCBC economists, 2Q’s GDP growth should improve but the data would be softer than expected. While higher government spending and investment pick-up should provide support to the economy’s growth this year, BI had reduced its policy rate by 25bps last week, suggesting some concerns remain on the economic momentum.

According to the latest ABARES (Australian Bureau of Agricultural and Resources Economics and Sciences) reports on agricultural commodities and Australian crop, we note that grains prices have been on a general decline QoQ. The world wheat indicator price is also anticipated to be the lowest in 15 years in real terms.
Given that animal feed costs typically cost about 55-60% of total pork production costs, we think this bodes well for QAF.

Given the mixed outlook across companies, we are NEUTRAL on the sector. Among the stocks under our coverage, Sheng Siong Group [BUY, S$0.95] is our preferred pick, given its decent dividends and steady earnings performance.
We had recently downgraded Thai Beverage [HOLD, S$0.89] due to limited upside, while we still like their growth story and potential M&A opportunities. Thus we have advocated longer term investors to consider adding positions at S$0.85 or lower.
For QAF [BUY, S$1.27], we maintain our view on the stock for now, keeping in mind the recent developments relating to their entity, Gardenia Bakeries KL Sdn Bhd (GBKL), whereby deconsolidation of GBKL is also expected for 2Q onwards

Jodie Foo OCBC Securities | http://www.ocbcresearch.com/ 2016-06-24

OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 0.95 Same 0.95

BUY Maintain BUY 1.27 Same 1.27

HOLD Maintain HOLD 0.89 Same 0.89

SELL Maintain SELL 0.97 Same 0.97

SELL Maintain SELL 2.15 Same 2.15