Retail Staple - RHB Invest 2018-02-19: Right Into The Shopping Cart

Retail Staple - RHB Invest 2018-02-19: Right Into The Shopping Cart SHENG SIONG GROUP LTD OV8.SI DAIRY FARM INT'L HOLDINGS LTD D01.SI

Retail Staple - Right Into The Shopping Cart

  • Singapore’s December Retail Sales Index was released last week. 2H17 retail sales – excluding motor vehicles – were up 2.4%. Supermarkets, in particular, had a good run up in sales over the last few months of 2017.
  • Since the two supermarket names under our coverage – Dairy Farm and Sheng Siong – collectively have approximately 40% of the market share, we expect both companies to deliver stronger earnings growth in their upcoming results. 
  • We maintain our OVERWEIGHT call on the sector, with a preference for Dairy Farm since we think consumption across the region is likely to pick up this year.



Just kept buying. 

  • Since Aug-Dec 2017, supermarket sales have been showing a robust recovery trend. We think the improvement was mainly driven by economic growth, pent-up demand, and a low base effect in 2016. 
  • We note that supermarket sales were depressed over the same period in 2016, despite several festivities. As such, the stronger economic outlook could have prompted higher spending in necessities after a year of scrimping. This is positive for both Sheng Siong and Dairy Farm, which we estimate to have c.15% and c.27% markets share respectively.


Prelude to upcoming results. 

  • Dairy Farm is our preferred sector pick. The food division has been a key drag to the group in 1H17. We estimate that the Singapore market is contributing close to 20% of its revenue. We believe the uplift in domestic consumption – as well as the 2% y-o-y appreciation of the SGD in 2H17 – would bode well for Dairy Farm’s food division. Overall, we expect the group’s upcoming results to come relatively in line with our estimates, with the health & beauty division being the key driver of growth. See report: Dairy Farm - 2H17 To Play Catch Up
  • Sheng Siong, being a pure Singapore play, is the obvious beneficiary of the stronger-than-expected sales in the supermarket sub-sector. We think the group’s 4Q17 is likely to come in stronger than we previously expected. This is because the strong store sales growth and new stores being opened are likely to more than offset the negative impact from the closure of the Verge, as well as the partial closure of its flagship store in Woodlands. See report: Sheng Siong - Expecting Strong 4Q17 Results


Growth mode to follow through pre-Lunar New Year (LNY) sales. 

  • Looking ahead, we think both supermarket and retail sales would continue the y-o-y positive tract in 1Q18. This is mainly because the LNY falls in mid-February this year, vis-à-vis Jan 2017 previously. This gives consumers more time to shop.
  • Moreover, consumer confidence has started on a higher note in 2018 – this is on the back of an elevated wealth effect and higher-than-expected GDP growth.
  • Our recent pre-LNY channels checks in Chinatown saw a stronger footfall when compared to last year. We think this indicates the continuation of the positive consumer sentiment, as well as stronger y-o-y retail sales. We note that many stallholders have started discounting LNY goods earlier this year, rather than wait until the last day to entice sales.


Maintain OVERWEIGHT on the sector, with Dairy Farm as the preferred pick.

  • In Singapore, we expect consumer sentiment to remain positive on the back of the country’s economic growth.
  • For the supermarkets sub-sector, we think the potential taxing of international ecommerce sales to be announced in the upcoming budget could shift some sales back to brick-and-mortar players. Furthermore, Amazon Prime Now has begun charging a subscription, thereby limiting its usage to Amazon Prime members.
  • This should also limit competition to Dairy Farm and Sheng Siong’s brick and mortar stores.







Juliana Cai CFA RHB Invest | http://www.rhbinvest.com.sg/ 2018-02-19
RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 0.990 Same 0.990
BUY Maintain BUY 9.530 Same 9.530



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