Retailing - RHB Invest 2020-06-16: Phase 2 Begins This Friday

SHENG SIONG GROUP LTD (SGX:OV8) DAIRY FARM INT'L HOLDINGS LTD (SGX:D01)

Retailing - Phase 2 Begins This Friday

Maintain NEUTRAL; Top Pick: Sheng Siong (SGX:OV8).
Singapore will start its Phase 2 reopening on 19 Jun with the resumption of most activities, subject to some safe distancing measures. Small-group gatherings of up to five persons can resume. All retail businesses may reopen physical outlets. Food & beverage (F&B) dine-ins will be allowed for up to five/table. Overseas travel and large-scale gatherings remain prohibited.

We expect to see some positive respite for the F&B players amid pent-up consumer demand and 2.5-months of cabin fever during the Circuit Breaker and Phase 1 reopening. This should shift some of the food demand from grocery retailers back to foodservices. However, we do not expect a V-shape recovery in retail.
We remain NEUTRAL on the Singapore retail sector as the weak GDP outlook and rising unemployment are likely to be a ceiling on consumer purchasing power and could dampen consumer confidence in the near term.

With F&B dine-ins permitted, and most retail businesses resuming operations, we expect F&B players to benefit from stronger footfall, while popular F&B names and sub-sectors – like bubble tea stores – could see a short-term sales spike from knee-jerk demand. The resumption of schools for all levels – from 29 Jun – should also create more foot traffic from students. However, we do not see a V-shape recovery in retail.
Cautious consumers may not go out/dine out as frequently as they did prior to COVID-19. On top of that, the continuation of work-from-home measures, and prohibition on large social gatherings and tourism inactivity could limit the recovery of F&B concepts and retail locations which rely on these crowds.

Grocery retailers are expected to see strong earnings this year as a result of the stay-home measures during the Circuit Breaker and Phase 1. Revenue growth should taper off in 2H20 as a consequence of the recovery in foodservice retail.
Nonetheless, we still expect y-o-y growth to be positive in 2H20 given that some of the work-from-home measures remain in place.

Singapore’s GDP is expected to contract by 4-7% in 2020. It may not recover strongly in 2021 if other major economies continue to see disruptions arising from a second wave of infections. The overall unemployment rate in Singapore has also hit 2.4% in 1Q20, with citizens’ unemployment rate reaching 3.5% – the highest in 10 years.
Yet, unemployment is expected to increase in coming months. We believe macro pressures will cap consumer confidence and continue to dampen spending in the near term. A resurgence of COVID-19 cases in the community also remains a key downside risk for the sector.