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Consumer Sector 2020 Outlook - CGS-CIMB Research 2019-12-09: OVERWEIGHT

Consumer Sector 2020 Outlook - CGS-CIMB Research | SGinvestors.io THAI BEVERAGE PUBLIC CO LTD (SGX:Y92) DAIRY FARM INT'L HOLDINGS LTD (SGX:D01) JAPFA LTD. (SGX:UD2) SHENG SIONG GROUP LTD (SGX:OV8)

Consumer Sector 2020 Outlook - OVERWEIGHT


Consumer Sector - 2019 recap

  • 2019 was a mixed year for consumer staples.
    • DAIRY FARM INTERNATIONAL (SGX:D01) faces tough times. It started the year on a slow note trying to transform its South East Asia (SEA) Food business, but was hit from Jun 19 onwards, when Hong Kong, its major market was struck by protests. In its 3Q19 interim statement, it mentioned that the weak trading operations of its HK business would offset any benefits it reaped from ongoing transformation programmes.
    • THAI BEVERAGE (SGX:Y92) had a stellar year, seeing FY9/19 net profit 4Q19 growth of 14.1% on the recovery of domestic Thai alcohol volumes that grew (c.+7% y-o-y respectively), the inclusion of a full year’s worth of SABECO volumes, and sustained growth in Grand Royal volumes (c.+15% y-o-y).
    • SHENG SIONG GROUP (SGX:OV8) had a good year as revenue from new stores secured in 2018 (+10 stores) mitigated its weaker same-store-sales growth. In 2019, Sheng Siong won tenders for six stores.
    • JAPFA (SGX:UD2) had a watershed year, with its Indonesian poultry division seeing lower margins on lower DOC and live bird prices and African Swine Fever (ASF) striking down Vietnam swine prices.


Singapore’s food and beverage services index saw positive momentum YTD

  • Singapore’s food and beverage services index saw positive momentum YTD, according to the latest official data from the Singapore Department of Statistics (SingStat). Apart from Feb 2019 when F&B sales were weaker y-o-y due to an earlier Chinese New Year, the F&B services index has been rather encouraging.
  • Total sales value for the F&B sector was up 2.8% y-o-y in 9M19, with an improving trend across the quarters (3Q19: 3.7% y-o-y; 2Q19: +3.5% y-o-y). Fast food segment saw the strongest growth in 9M19 with average growth of 8% y-o-y, while restaurants, cafés, food courts and other eating places recorded average sales growth of 2.9% y-o-y over the period.

2019 was a year of investment for Singapore-listed F&B players.

  • The larger F&B players continued to expand their presence, both in Singapore and abroad.
    • In FY9/19, JUMBO GROUP LIMITED (SGX:42R) (ADD, Target Price: S$0.47) opened four stores in Singapore (2 Jumbo Seafood restaurants and 2 Teochew cuisine stores) and seven franchise outlets overseas (4 Jumbo Seafood restaurants and 3 Bak Kut Teh stores).
    • BREADTALK GROUP (SGX:CTN) added a total of 48 outlets as of end-3QCY19, including 13 new-concept stores under its 4orth Food Concepts division. The company also completed acquisition of Food Junction (15 food courts) in Oct 2019, consolidating its position as the 3rd largest foodcourt operator in Singapore.
    • Meanwhile, KOUFU GROUP (SGX:VL6) added four food courts, two restaurants and 15 F&B kiosks YTD.
  • F&B players saw better performance locally in 2019, but overseas operations were a mixed bag.
    • Jumbo Group’s earnings growth in FY9/19 was mainly driven by new store openings and positive SSSG in Singapore; its China operations remained a drag.
    • BreadTalk Group recorded good sales growth in Singapore across its three core segments (bakery, food atrium and restaurant), but its margins were dragged mainly by
      1. aggressive store openings in its 4orth Food Concepts division, and
      2. weak bakery operations in China.
    • Koufu Group also saw positive SSSG and improved rental income in 9MCY19, driven by higher occupancy rate and stronger sales growth by tenants.


Consumer Sector - 2020 outlook

  • We think 2020 will be a year of continued growth for most of our stocks, barring Dairy Farm International whose outlook is contingent on the duration of the HK protests.

Dairy Farm’s outlook contingent on duration of HK protests.


Thai Beverage benefits from SABECO improvement, sustained domestic consumption.


Sheng Siong will continue to be fuelled by new stores.


Japfa on a cyclical recovery.


We expect Singapore’s F&B industry to maintain healthy growth in CY20F

  • We expect Singapore’s F&B industry to maintain healthy growth in CY20F, supported by consumer behaviour and busy lifestyle trend towards frequent eating-out, convenience, and quick-service formats. Mass-market segment could lead growth, especially with the recent slowdown in economy causing consumers to trade down. Malls are gradually shifting space allocation from retail to services (F&B, entertainment), and we believe more mass-market F&B tenants will be added into the mix.

Listed F&B players are expected to continue growing their presence in the mass-market F&B.


Headwinds to persist, but will be manageable.

  • Industry-wide challenges that invariably affect the F&B sector will remain. We believe operating cost pressures, keen competition and challenging business environment will persist in CY20F. Companies with stronger cost management and margin enhancement strategies will be able to navigate the challenges better.


M&As could remain in favour for CY20F

  • M&As could remain in favour for CY20F as
    1. larger F&B firms continue to seek market share and expansion in this space by taking out smaller players, and
    2. strong net cash position of listed F&B players.

FY20F could be a year of margin expansion for Jumbo

  • FY20F could be a year of margin expansion for Jumbo Group, with stronger profit contributions from its Singapore outlets offsetting the weakness in China, in our view. We expect Jumbo Group’s Singapore operations to be its main earnings driver in FY20F, post the closure of lower-margin stores and the opening of higher-end higher-footfall outlets. We forecast Jumbo Group’s Singapore stores to record 2% SSSG in FY20F, helped by continued tourist arrival growth (especially from North Asia). Meanwhile, the China operations are expected to be less of a drag in FY20F.
  • Jumbo Group is actively optimising the cost structure of its China operations. We believe losses from its China operations peaked in FY19, and will be less of a drag ahead. We forecast Jumbo Group to report 20.4% net profit growth in FY20F.


Consumer Sector - Valuations

  • The consumer sector is currently trading slightly below its long-term historical average likely driven by the sharp downturn in Dairy Farm Share Price. Hence, the sector is still inexpensive considering the average c.14% y-o-y company earnings growth in FY20F. We do however advocate being selective as the companies will face different seasonalities.


Consumer Sector - Top picks and least preferred






Cezzane SEE CGS-CIMB Research | https://www.cgs-cimb.com 2019-12-09
SGX Stock Analyst Report ADD MAINTAIN ADD 1.000 SAME 1.000
REDUCE MAINTAIN REDUCE 5.400 SAME 5.400
ADD MAINTAIN ADD 0.700 SAME 0.700
ADD MAINTAIN ADD 1.370 SAME 1.370


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