SHENG SIONG GROUP LTD (SGX:OV8)
DAIRY FARM INT'L HOLDINGS LTD (SGX:D01)
Retail Staples - Remaining Resilient Amid COVID-19
- Stay NEUTRAL; Preferred Pick: Sheng Siong (SGX:OV8).
- As more countries move towards lockdown measures to contain the spread of COVID-19, consumers are more likely to turn to supermarkets for food until restrictions are eased. However, we believe life will not normalise with immediate effect as employees are likely to be encouraged to continue working from home to prevent another wave of the viral contagion. Hence, supermarket spending should continue to remain resilient, even as panic-buying behaviour tapers off.
Singapore supermarket spending was up in February.
- Supermarket retail sales climbed 15.5% y-o-y (+15.4% m-o-m) despite the post-Lunar New Year lull season. We think this was mainly due to panic buying when Singapore raised its risk assessment alert level to Disease Outbreak Response System Condition (DORSCON) Orange.
Circuit breaker measures introduced.
- Singapore implemented stricter measures on 7 Apr to urge residents to stay home to contain the spread of COVID-19. For four weeks till 4 May, c.75% of workers will work from home or stop work. This is because only essential services – food establishments, markets and supermarkets, clinics, hospitals, utilities, transport, and key banking services – are allowed to remain open during this period. Schools have also moved to home-based learning.
Expect supermarket sales to stay robust in April.
- Although food establishments will remain open, dining out is prohibited. Restaurant sales are likely to be adversely affected during this month. The increased timespan of residents staying at home due to school closures and work from home measures should further raise the demand for food at home. This ought to support supermarket sales for April.
- On the ground, we have seen many empty shelves at supermarkets due to panic buying following the introduction of the circuit breaker measures.
Expect supermarket sales to remain resilient after 4 May.
- We believe the stay home measures will only be eased in stages, even after the 4-week circuit breaker is lifted. This is because a sudden surge of people going back to work and schools could trigger another wave of COVID-19 contagion.
- While residents may rush to dine out after four weeks of “cabin fever”, we believe the increased proportion of employees working from home vs the norm should keep supermarket sales resilient.
Sheng Siong is our preferred sector pick.
- As resilient sales for the groceries sector prevails, we maintain our call and Target Price on Sheng Siong (SGX:OV8). Meanwhile, the enhanced Job Support Scheme and rental waivers from government agencies like the Housing & Development Board (HDB) should help to defray additional costs from higher workload, accommodation arrangement for Malaysian workers, and rising input costs from supply chain disruption. See Sheng Siong Share Price; Sheng Siong Target Price.
- We also expect higher sales derived from Dairy Farm (SGX:D01)’s supermarket segment, but this should be partially offset by declines at its health & beauty, convenience, and home furnishing formats. See Dairy Farm Share Price; Dairy Farm Target Price.
- See also report:
Juliana Cai
RHB Securities Research
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https://www.rhbinvest.com.sg/
2020-04-09
SGX Stock
Analyst Report
1.420
SAME
1.420
4.95
DOWN
5.050
