Consumer Sector - OCBC Investment 2017-06-13: A Pick Up In Sentiments?

Consumer Sector - OCBC Investment 2017-06-13: A Pick Up In Sentiments? Singapore Consumer Sector Stocks THAI BEVERAGE PUBLIC CO LTD Y92.SI SHENG SIONG GROUP LTD OV8.SI

Consumer Sector - A Pick Up In Sentiments?

  • Apr retail sales up 2.6% YoY.
  • E-commerce players expanding warehouse capacity.
  • Sector performance behind STI benchmark.

Local retail sales data for Apr slightly above consensus 

  • On the local retail scene, the recently released Singapore retail sales for Apr-17 came in slightly above Bloomberg’s consensus survey (+2.3%). 
  • Retail sales was up 2.6% YoY and excluding motor vehicles, retail sales was up 4.9%. The growth was notably driven by discretionary segments like Department Stores (+7.6%) as well as Watches & Jewellery (+14.3%). However, F&B services decreased 3% and Restaurants was still down 11%, while a staples segment such as Supermarkets was up 0.6%. 
  • Against a backdrop of a relatively resilient labour market and better tourist arrivals in 1Q, while this overall set of data could suggest that consumer sentiments may be improving, the magnitude of growth for retail sales is not significant and we keep in mind that high operating costs remain a challenge for retailers.

E-commerce players have been expanding 

  • Given the above environment, the delay of Amazon’s entrance into Singapore may have also offered some respite to retail players here. Nonetheless, existing e-commerce players like Reebonz and Lazada have been expanding their warehouse capacity to meet increasing demand.
  • Traditional retail players are not ignoring this development, with some already running their own online stores and/or delivery. However, we reiterate that for Singapore in particular, the lack of scale may hinder small players in achieving optimal efficiency for their e-commerce supply chain operations, which may result in margins erosion instead.

Meanwhile, emphasis placed on productivity and innovation measures 

  • Amid an operating environment as outlined above, we note that companies have been focusing on initiatives to improve their productivity, and the local government has also encouraged retailers with certain incentives. 
  • An article by Bangkok Post back in May reported that Thai Beverage (Thai Bev) had set up a subsidiary to use robots and other automated production technology and machinery in its warehouses and factories in efforts to boost efficiency. 
  • Recall that Sheng Siong Group (SSG) has been rolling out its hybrid self-checkout system across its outlets, which aims to ease labour pressures and increase efficiency.

Sector lagging behind STI 

  • With the STI up 12.8% YTD, the FTSE Consumer Goods Index and FTSE Consumer Services Index have paled in comparison as the indices were down 1.2% and up 6.4%, respectively. 
  • Given that the retail scene has not seen a broad-based improvement, coupled with the growth of e-commerce players, we are NEUTRAL on the consumer sector and remain selective with buy calls for Sheng Siong Group (SSG) [Rating: BUY; Target Price S$1.15] and Thai Beverage [Rating: BUY, Target Price: S$1.01]
  • We like SSG’s management strength and largely stable business, and despite the looming store closures, new stores sales and achieving an optimal level of revenue per square feet for its stores are also key factors to potentially sustain its earnings performance.

Jodie Foo OCBC Investment | http://www.ocbcresearch.com/ 2017-06-13
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 1.010 Same 1.010
BUY Maintain BUY 1.150 Same 1.150