Singapore Consumer Sector - Phillip Securities 2017-12-04: Grasping The New E-commerce Reality

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OLD CHANG KEE LTD. 5ML.SI THAI BEVERAGE PUBLIC CO LTD Y92.SI SHENG SIONG GROUP LTD OV8.SI FRASER AND NEAVE, LIMITED F99.SI DAIRY FARM INT'L HOLDINGS LTD D01.SI

Singapore Consumer Sector - Grasping The New E-commerce Reality

• Variety, price and convenience are the three main drivers for consumer purchases.
• Fresh products is the least vulnerable to Amazon’s threat.
• We maintain our Overweight view on Singapore Consumer Sector.
• ‘Buy’ on both Sheng Siong (TP: S$1.18) and Dairy Farm (TP: US$9.89).

Grasping The New E-commerce Reality

• Consumers are attracted to shopping online due to the low prices, the convenience of purchasing and delivery, wider selection, as well as ability to shop on the go or a 24/7 access. 
• Amazon Prime’s entry to Singapore on end Jul-17 had put retailers on the hot seat.

How Do We View This?

We do not think that Amazon will grapple all market share away from existing players: 

• The fragmented e-commerce market in Singapore imply a lack of customer loyalty to a single platform. Consumers are price sensitive.

Fresh products are the least vulnerable to Amazon’s threat. 

• The three major supermarkets are ramping up their fresh products offerings and we believe that Singaporeans still prefer to handpick perishables or fresh products.
• Local players dwarf Amazon Prime Now in terms of variety and range of offerings. We believe consumers generally prefer one-stop shopping. All three major supermarkets have large storage capacity to support optimal inventory stocking.
• Online players could save on rental and labour costs, but the capital-intensive nature to invest in extensive infrastructure, logistics and marketing shunned e-commerce business. The three supermarket companies have sustainable cost structure to maintain their pricing competitiveness, i.e. maintaining margins and keeping costs low.

Convenience is king. 

• Physical store are irreplaceable, and click-and-collect is the new way of shopping. In addition, Singapore has a very high store density.

The Unknowns: 

• Singapore government intends impose goods and services tax (GST) on online purchase. This could level the playing field between local GST-registered retailers and offshore retailers.
• Response from other brick-and-mortar operators could intensify competition.

Investment Actions 

We remain Overweight on the Singapore Consumer Sector. 

• After three lacklustre years, we expect the present rebound in economic conditions to continue and filter down to better consumer sentiment.
• We have ‘Buy’ ratings on both supermarkets, Sheng Siong (Target Price: S$1.13) and Dairy Farm (Target Price: US$9.89). They have own Fresh distribution warehouse in Singapore, allowing them to ramp up fresh offerings as well as to leverage economies of scale. Fresh products are less vulnerable to Amazon’s threat. Improving operating efficiencies will support their profitability and thus more resilient and sustainable. In addition, they are also expanding their stores network, bringing their presence closer to consumers.
• On F&B segment, we have ‘Buy’ on homegrown curry puff chain, Old Chang Kee (Target Price: S$0.98), and the dominant spirits manufacturer, Thai Beverage (Target Price: S$1.18), as well as an ‘Accumulate’ on FNN (Target Price: S$2.83). Food and beverage manufacturers could collaborate with online intermediaries, to complement their existing distribution network. For example, Old Chang Kee’s engaging Food Panda for delivery services, products of Thai Beverage and F&N are available on Lazada, Redmart, and Amazon Prime.

Soh Lin Sin Phillip Securities | http://www.poems.com.sg/ 2017-12-04

Phillip Securities SGX Stock Analyst Report BUY Maintain BUY 0.980 Same 0.980

ACCUMULATE Maintain ACCUMULATE 1.180 Same 1.180

BUY Maintain BUY 1.130 Same 1.130

ACCUMULATE Maintain ACCUMULATE 2.830 Same 2.830

BUY Maintain BUY 9.890 Same 9.890