THAI BEVERAGE PUBLIC CO LTD (SGX:Y92)
DELFI LIMITED (SGX:P34)
FOOD EMPIRE HOLDINGS LIMITED (SGX:F03)
Consumer Sector - Tighten Your Belt, Pick Selectively
- Although we have started to see more optimism in the market as regional economies bottomed out in 2Q20, the economic toll and rise in unemployment resulting from COVID-19 are likely to persist into 2H20- 2021. This should pose continued challenges to overall consumption. We expect a full recovery only in 2022.
- Prefer defensive staples, with some exposure to recovery play.
- Maintain NEUTRAL on the sector; Top Pick: Thai Beverage (SGX:Y92).
Rising unemployment rates to impede consumer confidence and spending.
- The hospitality sector is most severely impacted by COVID-19 with the absence of global travel. Retail, transport and other related sectors have not been spared either as locals are bound by social distancing measures while tourist spending ceased. Economies dependent on global trade and overseas remittance are also badly hit.
- Without a vaccine, we do not expect things to return to normal in 2021. We expect unemployment to stay high, especially for the sectors that have taken a direct hit from COVID-19. Moreover, as government support tapers moving into 2H20 and 2021, retrenchment pressure should remain.
- Although consumer confidence in the region has bottomed, with most nations relaxing national lockdowns and seeing a gradual resumption of activities, job insecurities, economic uncertainties and, high household debt will continue to weigh down on 2021 consumer sentiment and spending.
Tourist-dependent operations would take longer to recover.
- We note that Singapore has taken steps to reopen its border safely but the road to recovery is going to be long and gradual. So far, Singapore has set up green/fast lane travels with Malaysia and China. It is also in talks with several other countries such as Thailand, Japan and Indonesia to set up similar green lanes. But these are largely limited to essential business travels and official visits.
- For mass travel, Singapore has reopen its borders to Brunei and New Zealand. But both countries currently still advise against outbound travelling. We are therefore not optimistic on Genting Singapore (SGX:G13) and Jumbo Group (SGX:42R), which have substantial proportion of their revenue dependent on tourist spending. See reports:
Defensive names still preferred.
- We expect consumer staples to be least affected by COVID-19. With many people still working from home, players catering to home consumption should continue to show resilient results.
- We like Sheng Siong (SGX:OV8), a staple grocery retailer, which has benefitted from the lockdown and showed tremendous earnings growth in 2Q20. That said, the market may have priced in a large part of this resilient performance as the stock has significantly outperformed the market YTD. See Sheng Siong share price and report: Sheng Siong - RHB Invest 2020-08-03: An Exceptional 2Q20; Maintain BUY.
- We now prefer F&B producers like Thai Beverage (SGX:Y92) and Food Empire (SGX:F03) which have strong market share in their respective product segments, fairly resilient earnings and still trading at discounts to their peers and historical mean. See reports:
- Top Pick: Thai Beverage due to its more stable currency and exposure to the beer and restaurant segments for potential recovery play.
- Recent reports on other consumer sector stocks:
Juliana Cai
RHB Securities Research
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https://www.rhbinvest.com.sg/
2020-08-28
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Analyst Report
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