Consumer Goods Sector 2020 Outlook & Strategy - DBS Research 2019-12-12: Macro Positives To Drive Growth

Consumer Goods Sector 2020 Outlook & Strategy - DBS Research | SGinvestors.io SHENG SIONG GROUP LTD (SGX:OV8) KOUFU GROUP LIMITED (SGX:VL6) DELFI LIMITED (SGX:P34) THAI BEVERAGE PUBLIC CO LTD (SGX:Y92)

Consumer Goods Sector 2020 Outlook & Strategy - Macro Positives To Drive Growth


Tailwinds for GDP recovery in 2020.

  • Based on our economics desk’s projection, Singapore’s 2020 gross domestic product (GDP) forecast is expected to accelerate from 0.6% in 2019F to 1.4% in 2020F. The stronger uptick in GDP growth is expected to be led by uplift and bottoming out of the manufacturing sector, with the services sector remaining stable and resilient going forward.
  • Although GDP is expected to bottom out, recovery could be weak amid trade talks, geopolitical risks and slowing growth momentum in the US, Eurozone and China.

F&B, supermarket sales dominate Singapore retail spending as GDP slowed in 2019.

  • Singapore’s 2019 retail sales saw a general decline in discretionary spending in favour of consumer staples such as food items. Food and beverage (F&B) food service and supermarket sales largely improved. Restaurants and fast food outlets have done well in recent months. We believe that the weak economy in 2019 also contributed to poor discretionary spending.

Growth in ASEAN countries expected to accelerate.

  • Our economics team currently projects the Association of Southeast Asian Nations (ASEAN)-6 ex-Singapore’s GDP to grow by 3.0-6.8% in 2020F. Growth in most ASEAN economies are expected to pick up pace from 2019 with government spending and stimulus the key reasons for accelerating momentum of regional growth.
  • Regional elections and infrastructure reforms will support investment growth and consumption in Indonesia. Malaysia announced budget 2020 which aims to boost near term economic growth through digitising the economy, investing in human capital and fostering inclusive growth.
  • Government spending, especially on infrastructure projects, is expected to support growth and private consumption in the Philippines. Growth in Thailand will be supported by resilient private consumption and government spending while growth in Vietnam continues to be robust driven by manufacturing and construction.

FY20F earnings growth driven by better margins and cost efficiencies.

  • Based on our coverage of Singapore’s downstream consumer sector, we are projecting that earnings will grow by c.8.8% in FY20F, on margin expansion and revenue growth of 6.1%. Companies under our coverage are expected to ring in productivity gains, better sales mix and a more efficient operational expenditure (opex). Revenue growth will largely be driven by higher volume sales from market penetration and a larger store network.

Positive on companies with exposure to Singapore and Vietnam, less on China-exposed companies.

  • We are more positive on domestically exposed companies. We expect margins to improve slightly on productivity initiatives along with more robust domestic driven spending on consumer staples. We remain cautious on companies with significant exposure in China due to a potential slowdown and competition.
  • We are also positive on THAI BEVERAGE (SGX:Y92) and its penetration into the Vietnam market through Saigon Beer Alcohol Beverage Corp (Sabeco). We like stocks which are predominantly exposed to staples consumption in Singapore and Vietnam.


Prolonged external headwinds may hamper anticipated economic recovery.

  • The risk to our view of an improvement in the global economic outlook hinges on a positive resolution in the US-China trades talk that is currently far from conclusive. In addition, Brexit, Eurozone weakness and China’s slowdown could weigh on and hamper economic recovery. We remain cautious on companies which have significant exposure to China due to increasing competition and a potential slowdown in demand.
  • There are less risks on the currency front and input costs as the Singapore Dollar/US Dollar (SGD/USD) are expected to gradually strengthen.
  • We also note that soft commodities/food input prices have generally risen in 2019 and could pose risks beyond companies’ hedging period.

Valuation & Stock Picks

Valuation attractive, currently below 5-year historical mean.

  • The sector valuation (based on stocks under our coverage) is currently at 20x price-to-earnings (PE), which is about -1SD (standard deviation) below its 5-year historical average of 25x. We see growth kicking in as regional economies recover.
  • We prefer stocks with clear growth strategies in the ASEAN region as well as stable earnings, strong cash flows/balance sheets and/or attractive valuations.

SHENG SIONG GROUP (SGX:OV8) - Target Price: S$1.32.

THAI BEVERAGE (SGX:Y92) - Target Price: S$1.04.

KOUFU GROUP (SGX:VL6) - Target Price: S$0.88.

  • We maintain our BUY rating for Koufu Group with a Target Price of S$0.88 based on 17x FY20F PE.
  • We continue to like Koufu Group for its stable earnings, decent yield of 3.4%, decent cash flow generation, strong balance sheet and steady store expansion plans. Store expansion is expected to continue with two new food courts due to open in FY20F including one in Macau. The number of tea outlets in Singapore and Macau will reach 29 by the end of 2019, including its first outlet in Malacca.
  • Longer-term drivers include the setting up of an integrated facility aimed at delivering economies of scale, and overseas growth from Macau.
  • See Koufu Share Price; Koufu Target Price; Koufu Analyst Reports; Koufu Dividend History; Koufu Announcements; Koufu Latest News.

DELFI LIMITED (SGX:P34) - Target Price: S$1.51.

Alfie YEO DBS Group Research | Andy SIM CFA DBS Research | https://www.dbsvickers.com/ 2019-12-12
SGX Stock Analyst Report BUY MAINTAIN BUY 1.320 SAME 1.320