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

Consumer Retailing - RHB Invest | SGinvestors.io 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.

Our View.

  • 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.

Foodservice players to see varying degrees of recovery.

  • 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 retail growth to taper down in 2H20F.

  • 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.

Private spending capped by the macro outlook.

  • 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.

Juliana Cai RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-06-16
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