Spotlight on M&A - DBS Research 2019-07-02: SGX Consumer & Healthcare Sector

Singapore Market Strategy - DBS Group Research | SGinvestors.io QAF LTD (SGX:Q01) DELFI LIMITED (SGX:P34) SUNMOON FOOD COMPANY LIMITED (SGX:AAJ)

Spotlight on M&A - SGX Consumer & Healthcare Sector




F&B – premium in brand value


SUNMOON FOOD COMPANY LIMITED (SGX:AAJ)

  • SunMoon Food, a global distributor and marketer of fresh fruits, vegetables and products, has an asset-light consumer-centric and brand-focused business model that taps on its strong brand equity and expanding distribution network across Asia and the Middle East. SunMoon’s major shareholder, YiGuo which has c.55% stake and is backed by Alibaba, helps SunMoon to fast track its expansion plan into China.
  • SunMoon is able to leverage on Alibaba’s network, infrastructure and logistics to expand both upstream and downstream, and further strengthen its B2B channels and B2C ambitions. Alibaba’s dominant position in the e-commerce space via Tmall and Taobao, coupled with its omni channel strategy, allows SunMoon to expand its footprint in the China marketplace. Through YiGuo, SunMoon has access to logistics capability in China from port to cold room to points of sales nationwide, a key differentiator among competitors.
  • Since the entry of Alibaba-backed major shareholder YiGuo in 2016, revenue has surged almost 4-fold from S$20m in FY Mar17 to S$73m in FY Mar19. However, costs remain high as the group has not reached a critical-mass level yet. Streamlining its operations with YiGuo could help to remove duplication of resources and reduce costs.
  • YiGuo was established in 2005, and does global sourcing of products in various categories including fruits, vegetables, seafood, meat, poultry & eggs, pantry & beverages, and desserts. YiGuo has been in a strategic partnership with Alibaba.com since 2014. In our view, it could make economic sense for YiGuo (Alibaba), as a platform owner, to gain a dominant control of SunMoon, which has strong branding and a wide global distribution network, while SunMoon could potentially turnaround from its current loss-making position.

DELFI LIMITED (SGX:P34)

  • Delfi could be an attractive takeover target. The company had previously spun off its upstream cocoa processing business. In 2013, Delfi sold the division to Barry Callebaut AG for US$950m. Delfi is now left with a strong branded consumer business in Indonesia. It is a market leader with c.50% share in the branded chocolates market in Indonesia.
  • Its competitive advantage lies in its extensive network across Indonesia. It has first-mover advantage and considerable reach in the country. Global players are already competing in the market and its market share remains relatively low. We believe Delfi’s strong brand and network will be attractive to investors who are keen to dominate the chocolate space in Indonesia.

Other potential targets



Healthcare – Consolidate for better health

  • There are at least 14 Healthcare stocks listed on the SGX. Other than Raffles Medical Group (SGX:BSL), which owns Raffles Hospital and provides a suite of specialised services, and also Thomson Medical Group (SGX:A50) which owns a private hospital, the rest of the stocks are relatively small in size, with the majority of them with market capitalisations of below S$0.5bn.
  • In terms of scale, the number of medical specialists per company is also limited, and each company tends to focus only in their own specialised field, for example,
  • A consolidation among the listed players could enable these plays to address numerous risk factors faced by them, in our view. These include :
    • Dependent on key medical specialists: One of the main risks is dependence on key medical specialists. The loss of services of any of the key medical specialists could have a material adverse effect their business, financial position, results of operations and prospects. Furthermore, given increasing competition for experienced and reputable medical specialists, a timely replacement of doctors may not be achievable.
    • Limited range of services, competitive edge: Most of the listed healthcare plays are specialists in their specific field. Unlike hospitals, the range of services that these players provide is limited. A merger or consolidation could help to widen the range of services, provide cross referrals for patients, share resources, attract talents and to compete more effectively with bigger players including government-owned hospitals, private hospitals and medical centres.
    • Low market capitalisation, low liquidity: Most of the listed players, except hospital-owner Raffles Medical Group and Thomson Medical Group, have a market capitalisation of below S$1bn. Trading activity is also relatively low, with average daily turnover in the last 6-months at below 100,000 both in terms of volume and value. A bigger entity also has a higher chance of being on the investors’ radar screen.
  • Notwithstanding the above, we are also cognizant that given the high dependence on consultants and specialists in this field, the fit and working style are also key considerations in any potential corporate actions.





Lee Keng LING DBS Group Research | https://www.dbsvickers.com/ 2019-07-02
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