Singapore Downstream Consumer - DBS Research 2020-06-15: Live With COVID-19, Life Goes On

Singapore Downstream Consumer - DBS Research | SGinvestors.io KOUFU GROUP LIMITED (SGX:VL6) JUMBO GROUP LIMITED (SGX:42R) SHENG SIONG GROUP LTD (SGX:OV8) DAIRY FARM INT'L HOLDINGS LTD (SGX:D01)

Singapore Downstream Consumer - Live With COVID-19, Life Goes On

  • Phase 2 of lifting of Circuit Breaker could commence by end-June if conditions remain stable.
  • Consumer spending is expected to improve with re-opening of almost the entire economy in Phase 2.
  • Expect consumer spending to shift from Grocery retailers to F&B Foodservice segment.
  • Top picks are Koufu (SGX:VL6) for F&B Foodservice play, and Sheng Siong (SGX:OV8) for exposure to robust sales in 2Q20.



Phase 2 of lifting of Circuit Breaker could take place soon.

  • According to Minister Lawrence Wong, Singapore may be able to implement Phase 2 of easing of Circuit Breaker (CB) before end of June if conditions remain stable. The strict measures and restrictions imposed by the government over recent months have been effective in his view. Based on his message, we believe moving into Phase 2 is now imminent.


Almost the entire economy will re-open

  • Almost the entire economy will re-open, subject to implementation of safe management measures in Phase 2. These include the resumption of retail, F&B, personal health and wellness, home-based services, sports and public facilities, with limits on group size and capacity. Social interactions in small groups of up to 5 persons will be allowed and schools will fully re-open from end of June as well.


Dine-in allowed, F&B Foodservice to benefit in Phase 2.

  • With the sooner than expected implementation of Phase 2, we are now slightly more positive on consumption spending in 2H20. We expect spending spillover into mid-range F&B Foodservice with small groups allowed to gather and dine-in during Phase 2. Reasonably, supermarket spending would be less robust without panic buying and consumers spending less time at home.


Retail sales for April was a non-event


April’s retail sales data is a non-event, although good to know.

  • Retail sales for April was widely anticipated to be very poor, given that the CB started on 7 April. April’s retail sales plunged by 40.5% y-o-y. Excluding motor vehicles, retail sales fell by 32.8% y-o-y. This is a much sharper drop compared to March’s headline decline of 13.3% y-o-y and drop of 9.7% yo-y excluding motor vehicles. The weak retail figures were the result of close to a full month of CB that was in force, which saw most consumers staying at home.
  • The proportion of online sales also accelerated from 7-8% to 18% in April, reflecting more home-based shopping as there were limited channels to shop as consumers remained at home.

Supermarket sales remained robust.

  • As most people stayed home and many retail stores were closed, April saw a greater shift in spending into online, supermarkets (+74.6% y-o-y) and convenience stores (+10.7% y-o-y) accompanied by a more severe decline in the other categories.

F&B Foodservice retail sales.

  • Overall F&B Foodservice retail sales plunged 53% y-o-y led by restaurants which dived by close to 67% y-o-y. Food Caterers’ revenues fell close to 60% y-o-y as there were no mass gatherings and celebrations.
  • Revenue declines for cafes, foodcourts and other eating places saw a less severe fall at 45.5% y-o-y as some outlets remained open during the CB. Fast food remains a Singapore favourite, declining the least by 28.6% y-o-y, outperforming all other F&B Foodservice categories. It is therefore not surprising to see long queues when a major fast food operator reopened last month.


More important is consumption spending is set to improve

  • 2H20 retail spending is anticipated to be stronger as Phase 2 starts to kick in. We do not expect May’s retail sales to be encouraging as the CB was still in force. With the CB easing in June and July, we expect retail sales to improve. Retail spending should improve further as we move into Phase 2 of the CB, with almost all the economy re-opening.
  • More positive on consumer spending on better recovery visibility. With sooner than expected implementation of Phase 2, we are now slightly more positive on a recovery in consumption spending in 2H20 compared to 2Q20 when visibility was poor. However, we are not anticipating a strong recovery towards pre-COVID levels yet with crowd restrictions still in place and tourist spending not expected to recover in the near term. We can now see more people getting out and about to work, schools and play albeit in a cautious manner.


Turning more positive on mid-range F&B Foodservice segment

  • F&B Foodservice spending to return. We expect spending spillover into F&B Foodservice, as almost the entire economy reopens. F&B Foodservice players will benefit with small groups allowed to gather and dine-in during Phase 2.
  • Reasonably, supermarket spending would be less robust than the initial phases of the CB without panic buying and consumers spending less time at home.
  • With consumers widely anticipated to spend more on F&B Foodservice and correspondingly cutting down on grocery spending, we now turn more positive on F&B Foodservice stocks especially Koufu (SGX:VL6). We maintain our earnings forecasts on Sheng Siong (SGX:OV8), as we expect positive results for 2Q20 but anticipate some demand moderation in 2H as Phase 2 kicks in.

Upgrade Koufu (SGX:VL6) to BUY with higher target price of S$0.75.


Maintain FULLY VALUED for Jumbo Group (SGX:42R) on S$0.21 Target Price as it is a recovery laggard.

  • Although Jumbo Group (SGX:42R) may benefit from dine-in customers as well, we believe the pickup could be relatively slow due to its exposure to tourists and higher price point. Thus, Phase 2 of relaxation of CB may not be an effective catalyst to boost Jumbo’s demand recovery.
  • Besides 3Q20’s earnings could disappoint on poorer than expected operating run rate, which could lend further downside risks to our FY20F (FYE Sep) earnings estimates. There is currently low visibility to mass travel recovery, muting any earnings recovery beyond 4Q20. Weak tourist arrivals and subdued celebration activities among diners would cap any upside. We therefore believe that current valuation of 25x FY21F PE is lofty, compared to peer average of 22x. Share price recovery could lag the market when the current pandemic blows over.

Limited demand recovery for Jumbo.



Maintain BUY for grocery retailers as 2Q20 earnings are expected to be robust


Maintain BUY, target price S$1.66 for Sheng Siong (SGX:OV8).


Maintain BUY, target price US$5.10 for Dairy Farm (SGX:D01), positive on multi-year transformation plan and undervalued core business.



Live with it, life goes on.

  • Living with COVID-19 is an adjustment that all consumers and businesses would have to make. Change is always a part of life, and businesses will have to adapt to changing consumer spending patterns.





Alfie YEO DBS Group Research | Andy SIM DBS Research | https://www.dbsvickers.com/ 2020-06-15
SGX Stock Analyst Report BUY UPGRADE HOLD 0.75 UP 0.680
FULLY VALUED MAINTAIN FULLY VALUED 0.210 SAME 0.210
BUY MAINTAIN BUY 1.660 SAME 1.660
BUY MAINTAIN BUY 5.100 SAME 5.100



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