Consumer Sector - RHB Invest 2018-01-04: This Year, We Spend

Singapore Consumer Sector Stocks DAIRY FARM INT'L HOLDINGS LTD D01.SI FOOD EMPIRE HOLDINGS LIMITED F03.SI BREADTALK GROUP LIMITED 5DA.SI

Consumer Sector - This Year, We Spend

This year, we expect to see domestic spending picking up in Singapore as well as the region, reversing the past three years’ muted consumer sentiment. We think consumer cyclical stocks with exposure to the market in Singapore could look interesting this year.
In addition, with the World Cup coming this year, we expect sales of snacks as well as alcoholic and non-alcoholic beverages to spike in the months of June and July.
Food Empire is our Top Pick for 2018. With large exposure to Russia, the host of the 2018 World Cup, the company is likely to benefit from an increase in the country’s economic activities this year.

With Singapore’s 2017 GDP growth hitting the higher end of economists’ estimates – at 3.5% – we notice an increased optimism amongst consumers.
Improving job prospects, a higher wealth effect from rising property prices and stock market performances have boosted consumers’ confidence.

In addition, while we do not expect the GST to be hiked in 2018, an announcement about the hike could be made in Budget 2018. This could prompt consumers to plan big purchases ahead of any potential GST hike.
We think consumer cyclical stocks with exposure to the Singapore market such as Cortina (CTN SP, NR) and Hour Glass (HG SP, NR) could look interesting this year.
Restaurants and cafes players like RE&S (RES SP, NR), BreadTalk, No Signboard (NSB SP, NR) and Jumbo (JUMBO SP, NR) may also benefit from an improved consumer sentiment – thus experience an uptick in same-store sales growth this year.

For the many soccer fans out there, year 2018 would be defined by the International Federation of Association Football (FIFA) World Cup. We therefore expect sales of snacks, takeaway foods, as well as alcoholic and non-alcoholic beverages to increase. This is because fans usually snap up finger food while watching the matches.
Since beer is almost synonymous with football, local bars and pubs are likely to experience overwhelming crowds when the live matches are aired. Regional alcohol players could see a surge in sales volumes in June and July this year.

Russia, the host country for the World Cup this year, contributes over 40% of Food Empire’s revenue. We believe Food Empire would benefit from the uplift in the economic activities in the country as well as any potential appreciation of the RUB.
We also like management’s execution capabilities to diversify into the markets in Asia and into the food ingredients business.
We have a BUY recommendation on the stock and a TP of SGD1.00 pegged to 12x FY18F P/E.

Dairy Farm is a bellwether retail stock, with exposure across the Asian markets in various categories ranging from supermarkets, health & beauty to home furnishings. The supermarket segment in South-East Asia has been the main drag to result last year.
Moving into 2018, we believe the pick-up in consumer sentiment in the regional economies would lend support to the group’s supermarket segment, while the other higher-margin segments ie health & beauty and home furnishing could continue to hold up.
We maintain BUY on the stock with a DCF-derived TP of USD9.53.

Juliana Cai CFA RHB Invest | http://www.rhbinvest.com.sg/ 2018-01-04

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