GENTING SINGAPORE LIMITED (SGX:G13)
JUMBO GROUP LIMITED (SGX:42R)
SHENG SIONG GROUP LTD (SGX:OV8)
DAIRY FARM INT'L HOLDINGS LTD (SGX:D01)
THAI BEVERAGE PUBLIC CO LTD (SGX:Y92)
Consumer Sector - Consumption In Post-COVID; Upgrade To OVERWEIGHT
- Upgraded consumer sector to OVERWEIGHT; we prefer staple foods companies with exposure to a domestic recovery play.
- Consumer companies with exposure to the reopening of domestic activities, such as those in retail and food & beverage services, should see some earnings recovery in 2021F, from a low base in 2020.
- Local demand would also be supported by an increase in savings arising from travel restrictions, pent-up demand, and consumers becoming more accustomed to distancing themselves from COVID-19 risks. Furthermore, many firms restructured their opex to make it more variable, achieved through higher gross turnover rentals and lower base rental rates, as well as using more casual labour. These initiatives would mitigate the sharp rise in expenses, when revenue increases.
Cautious on tourism-related names - Jumbo Group, Genting Singapore
- We remain cautious on companies that are heavily dependent on tourism such as Genting Singapore (SGX:G13) (NEUTRAL, Target price: S$0.72, see Genting Singapore - RHB Invest 2020-11-16: Positive EBITDA; Upgrade To NEUTRAL) and Jumbo Group (SGX:42R) (SELL, Target price: S$0.19, see Jumbo Group - RHB Invest 2020-11-30: Long Road To Recovery; SELL). These firms may see some uptick in revenue for 4Q20 and 1Q21, on the back of holidays and festive demand. However, we believe the recovery in tourist numbers over the next 12 months is likely to be slow, due to the uncertainty on the mass distribution of the COVID-19 vaccine.
- The continued resurgence of COVID-19 infections across the globe in recent months and the deferment of the travel bubble between Singapore and Hong Kong are signs that the reopening of borders and resumption of air travel are likely to remain patchy.
Some stay-at-home trends to prevail after the pandemic.
- On the other hand, businesses that have benefited from lockdowns and the stay-at-home trend should see earnings moderate in 2021, as consumers transit into a post-COVID-19 world. Nonetheless, we note that COVID-19 has triggered some lasting trends that may continue even after the pandemic has been tamed, such as work-from-home (WFH), healthier lifestyles, and a greater emphasis on home entertainment. This could result in structural changes to consumption patterns.
- As such, businesses that did well during the lockdowns may continue to see elevated demand, compared to pre-COVID-19 days – even as sales taper down from the lockdown periods. Sub-sectors such as e-commerce, home furnishing, sports & recreational retail, online entertainment, as well as grocery retail are potential beneficiaries.
Thaibev is our Top Pick for the sector in 2021F
- We like Thai Beverage (SGX:Y92)'s earnings defensiveness – derived from the spirits segment – coupled with the potential recovery play from its exposure to on-premise consumption through its beer, non-alcohol beverages and restaurant segments.
- Thai Beverage’s spirits segment caters largely to off-premise local consumption, and has wide exposure to the upcountry region. Therefore, it is less impacted by social distancing restrictions caused by COVID-19 and the protests in Bangkok. In its FY20 (Sep) results, where sales volume of its spirits remained stable, while earnings grew 15% y-o-y.
- We believe Thai Beverage could also stand to benefit from the resumption of social and economic activities, as sales of beer, non-alcohol beverages and products for the restaurant segment should pick up when on-premise consumption of its drinks picks up (post-COVID-19).
- Thai Beverage’s ability to keep advertising and promotional expenses under control amidst rising economic activities would bring about further upside. Thai Beverage's share price is trading at 16x FY21F P/E, -1SD from the 5-year P/E mean. We believe this valuation is undemanding, given the company’s resilient earnings amidst challenging times.
- See report: Thai Beverage - RHB Invest 2020-11-27: Drinking In Both Good & Bad Times; BUY.
- See also Thai Beverage Share Price; Thai Beverage Target Price; Thai Beverage Analyst Reports; Thai Beverage Dividend History; Thai Beverage Announcements; Thai Beverage Latest News.
We continue to like Sheng Siong
- We continue to like Sheng Siong (SGX:OV8), the retailer of grocery staples, for its sustained high GPM, operational efficiencies, and high FCF generation. However, we note that investor interest on grocery retailers has moderated, after the lockdown period ended and positive news on vaccine development emerged.
- That said, if the WFH trend and travel restrictions remain in place moving into late 2021, Sheng Siong’s sales may remain buoyed, if not exceed levels recorded prior to the pandemic – which should bring about an upside surprise. Potential privatisation or a collaboration with giant e-commerce players could be a key rerating catalyst in the long run.
- See report: Sheng Siong - RHB Invest 2020-10-30: Possibilities With Huge Cash Pile; BUY.
- See also Sheng Siong Share Price; Sheng Siong Target Price; Sheng Siong Analyst Reports; Sheng Siong Dividend History; Sheng Siong Announcements; Sheng Siong Latest News.
Dairy Farm’s valuation is undemanding comparatively
- Dairy Farm (SGX:D01) is trading at 19x FY21F P/E (historical average: 24x P/E). The continued wave of COVID-19 infections in Hong Kong is likely to weigh down Dairy Farm’s near-term prospects, as this would affect the recovery of its health & beauty division, as well as the restaurant segment.
- Nonetheless, we think its current valuation presents a good opportunity for long-term accumulation – especially given the positive news on vaccine development.
- See report: Dairy Farm - RHB Invest 2020-10-22: The New “Normal”; Keep BUY.
- See also Dairy Farm Share Price; Dairy Farm Target Price; Dairy Farm Analyst Reports; Dairy Farm Dividend History; Dairy Farm Announcements; Dairy Farm Latest News.
Key downside risks to our sector outlook:
- A slower-than-expected economic recovery, prolonged restrictive measures as a result of the COVID-19 pandemic, and a resurgence of COVID-19 infections.
Juliana Cai
RHB Securities Research
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https://www.rhbinvest.com.sg/
2020-12-08
SGX Stock
Analyst Report
0.720
SAME
0.720
0.190
SAME
0.190
1.870
SAME
1.870
4.470
SAME
4.470
0.820
SAME
0.820
