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
- Singapore’s 2019F GDP set to accelerate slightly from 0.6% in 2019F to 1.4% in 2020F driven by manufacturing sector.
- Consumer sector growth supported by macro tailwinds as economic recovery kicks in.
- Expect consumer stocks with clear growth strategies and attractive valuations to be in play.
- Stock picks: THAI BEVERAGE (SGX:Y92), SHENG SIONG GROUP (SGX:OV8), KOUFU GROUP (SGX:VL6), DELFI LIMITED (SGX:P34).
Outlook
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.
Risks
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.
- We maintain our BUY recommendation for Sheng Siong Group with target price (TP) of S$1.32 as we continue to see growth driven by more new stores. It opened five new supermarkets this year with one more due to open in 1Q20. Recently opened stores have performed well. Singapore’s retail sales for supermarkets have generally been positive this year.
- Sheng Siong Group’s growth should continue to be driven by new stores, Dividend yield is decent at 3-3.5% with potentially higher payout.
- See Sheng Siong Share Price; Sheng Siong Target Price; Sheng Siong Analyst Reports; Sheng Siong Dividend History; Sheng Siong Announcements; Sheng Siong Latest News.
THAI BEVERAGE (SGX:Y92) - Target Price: S$1.04.
- We maintain our BUY recommendation with sum-of-the-parts (SOTP) based Target Price of S$1.04, premised on;
- steady 11% growth in net earnings in FY20F,
- improved contributions from Sabeco and lower losses from Non-Alcoholic Beverages (NAB),
- continued deleveraging from its strong and stable cash flow, as well as potential monetisation of assets.
- We believe the deleveraging strategy remains among the top priorities of its management. Valuation is reasonable at 19.1x FY20F PE, below its historical 5-year forward average PE of 22x.
- See Thai Beverage Share Price; Thai Beverage Target Price; Thai Beverage Analyst Reports; Thai Beverage Dividend History; Thai Beverage Announcements; Thai Beverage Latest News.
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.
- We like Delfi for its attractive valuations vis-à-vis an earnings turnaround traction. We expect earnings growth to accelerate via margin expansion through premiumisation, and regional growth through higher penetration of the Van Houten brand. We believe the company is also a potential takeover target for its dominance in Indonesia’s general trade channel for chocolate confectionery.
- Delfi currently trades at an attractive 16x PE.
- See Delfi Share Price; Delfi Target Price; Delfi Analyst Reports; Delfi Dividend History; Delfi Announcements; Delfi Latest News.
Alfie YEO
DBS Group Research
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Andy SIM CFA
DBS Research
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https://www.dbsvickers.com/
2019-12-12
SGX Stock
Analyst Report
1.320
SAME
1.320
0.880
SAME
0.880
1.510
SAME
1.510
1.040
SAME
1.040
