Singapore Consumer Stocks - DBS Research 2020-04-22: Stay Home & Stop Snacking


Singapore Consumer Stocks - Stay Home & Stop Snacking

  • Food spending patterns to shift again from circuit breaker extension and tighter measures.
  • Food demand shifting even more towards supermarkets and meals, and away from snacks, beverages, and dessert outlets.
  • Supermarket players will continue to benefit from substitution effect.
  • Maintain BUY for Dairy Farm (SGX:D01) and Sheng Siong (SGX:OV8); NEUTRAL on Koufu (SGX:VL6) and Jumbo Group (SGX:42R).

Food spending pattern to shift again from extended Circuit Breaker and its tighter measures

Circuit breaker extended by another 4 weeks.

  • The Singapore government has announced that it will extend the existing Circuit Breaker period by another four weeks, from 4 May 2020 till 1 June 2020. Apart from the extension, a key measure is to minimise the number of workers commuting daily to work from about 20% to around 15%. For the food retail sector, this means allowing fewer F&B Foodservices and manufacturing businesses to operate during the circuit breaker period and restricting entry to four popular wet markets.

Fewer F&B Foodservice outlets in operation.

  • There will be direct hit on the F&B standalone outlets that sell only beverages, packaged snacks, confectioneries or desserts and these will have to shut. All other F&B Foodservice establishments selling meals including hawker centres, foodcourts, coffee shops, restaurants, fast food, hot/cooked snacks or bread outlets and their supporting operations such as central kitchens, can remain operational, but for only takeaway and delivery services.

Restricting entry to four popular wet markets.

  • The four popular NEA managed wet markets affected are Geylang Serai Market, Block 104/105 Yishun Ring Road (Chong Pang Market), Block 20/21 Marsiling Lane, and Block 505 Jurong West Street 52.
  • Regular visitors to these four wet markets will only be allowed entry on alternate days. This will reduce physical interaction at the wet markets and may possibly invoke a change in spending patterns for food.

Snack and confectionery manufacturing are not essential.

  • This is perhaps the right time to reduce snacking as most people are staying home. Snack and confectionery manufacturing facilities are not allowed to operate as part of the latest measures.

Job Support Scheme extended for another month.

  • To support the new circuit breaker measures, the Ministry of Finance has also extended the 75% wage subsidy under the Job Support Scheme for companies across all sectors to include April and May (from only April previously).

Food demand will shift to supermarkets and meals, away from snacks, beverages, dessert outlets

Less food options available.

  • Only the more critical consumer services are now in operation. We envisage a further shift in spending on food consumption as consumers substitute and switch to alternative food items and channels. Beneficiaries would be outlets or channels that remain open which are supermarkets, hawker centres, foodcourts, coffee shops, restaurants, fast food, hot/cooked snacks or bread outlets. Takeouts and delivery would now be more targeted at meals and less on snacks, beverages and desserts.

How supermarkets will benefit further

Supermarkets also carry similar products to those affected by closures and restrictions.

  • Besides switching retail channels and formats, supermarkets are already carrying some of the items sold by affected standalone food outlets. Consumers would now switch from purchasing at these outlets to procure similar items (such as packaged frozen desserts, packaged snacks and packaged beverages) from the supermarkets.
  • Restrictions on wet markets may push shoppers to other wet markets or to some extent supermarkets as well. As local snack producing factories are now not allowed to operate, we may see also some switching in supermarkets from locally produced to imported snacks.

More staying at home for longer with the extension of the circuit breaker by another 4 weeks.

  • In the bid to further reduce physical crowd movement, only the more critical consumer services are now allowed to operate. This would eliminate more people from having to travel to work. All other retail establishments not listed in the categories below including basic haircutting services (which were previously allowed) must suspend on-site operations.
  • Online retail however is allowed except for online retail of pets. We believe supermarket sales would increase further as more people procure food from the supermarkets and cook at home.

Continue to Overweight Singapore Grocery Retailers

Expect supermarket sales to be robust.

  • Supermarket sales have grown strongly as seen in the latest available retail sales for February 2020 from Singstats. Supermarket sales have bucked the trend, rising 16% y-o-y, compared to a decline in overall retail sales by 8.6% y-o-y (-10.2% excluding motor-vehicles). With the tighter and extended circuit breaker, more people will be staying home, and we will continue to see a shift in F&B spending patterns. We expect demand for supermarket sales to post another strong month in the upcoming retail sales announcement for the month of March 2020.

Sheng Siong (SGX:OV8)

Dairy Farm (SGX:D01)

Koufu (SGX:VL6).

  • We downgrade Koufu Group (SGX:VL6) to HOLD as we reduce our FY20-21F earnings by 5-20%. Macau Tourist Arrivals plummeted 95% y-o-y in February 2020. In addition, our analysis of foodcourt locations finds that > 25% of all foodcourt outlets are located in schools and industrial areas. These would be impacted by the loss of footfall as students and most of the workforce stays home. The latest round of measures would affect its R&B and Supertea business.
  • Downgrade to HOLD in view of lower footfall in foodcourts exposed to tourist markets, and schools, malls, workplaces, hospitals and heartlands due to the circuit breaker measures.
  • See Koufu Share Price; Koufu Target Price; Koufu Analyst Reports; Koufu Dividend History; Koufu Announcements; Koufu Latest News.

Alfie YEO DBS Group Research | Andy SIM CFA DBS Research | https://www.dbsvickers.com/ 2020-04-22
SGX Stock Analyst Report HOLD DOWNGRADE BUY 0.68 DOWN 0.840