Singapore Retail Sector - DBS Research 2021-04-06: First Uptick In Retail Sales Since 2020

FRASERS CENTREPOINT TRUST (SGX:J69U) LENDLEASE GLOBAL COMMERCIAL REIT (SGX:JYEU) MAPLETREE COMMERCIAL TRUST (SGX:N2IU)

Singapore Retail Sector - First Uptick In Retail Sales Since 2020

Singapore's February 2021 total retail sales rose 5.5% y-o-y, the first y-o-y growth since 2020, boosted by CNY spending.
Online sales were at the lower end of our expectations at 10.1% of total sales.
Outperformers watches & jewellery (+34% y-o-y) and apparel (+32%) made up for the drop in F&B (-15%), which was affected by capacity limitations.
Prefer Frasers Centrepoint Trust (SGX:J69U), Mapletree Commercial Trust (SGX:N2IU) and Lendlease REIT (SGX:JYEU) for retail ‘trade reopening’ plays.

February total retail sales rose 5.5% to S$3.3bn boosted by festive CNY spending.
Online sales was at only 10.1% of the total retail mix, at the lower end of our expectations.
Outperforming trade sectors included watches & jewellery (+34% y-o-y), apparel & footwear (+32%) and supermarket sales (+14%), while laggards were cosmetics & medical goods (-19%).
We note that CNY fell in a different month this year in February (versus January in 2020). Comparing y-o-y performance for Jan & Feb in aggregate, retail sales declined by a slight ~1.2% in 2021 compared to 2020, a commendable performance in our view.

Trade sectors such as apparel & footwear and watches & jewellery posted a surprise increase in the month of Feb 2021, given the lacklustre performance in the months leading up to CNY. As written in our recent report, Singapore Property: Life will soon be normal again , the recent move to raise work-in-office cap to 75% from the current 50% will propel new demand for the above-mentioned trade sectors as Singaporeans switch out of “ lounge wear” for office attire again.
We are hopeful that spending will slowly rotate back to beauty & health on the same note, although we suspect that e-commerce players such as Shopee and Lazada may have eaten into a significant portion of the pie from players with their aggressive marketing campaigns.
That said, we believe there is good momentum in retail sales, especially up to 1H21.

Looking at Jan-Feb as an aggregate, F&B sales declined 15.5% across January and February in 2021 compared to 2020. Almost one-fifth of total F&B expenditure was made through online sources, which would have benefited restaurants (+8.5% y-o-y) and to some extent food caterers (-56%).
We note that many landlords that had made an effort to steer towards omnichannel sales (such as the Makan Master app by Frasers) may have captured a portion of these online sales, although we think this may be one-off given the
1. social limitations for restaurant dine-ins across the CNY period, and
2. families opting to stay in if they had been unable to secure reservations at various restaurants,
3. more conservative “per-head” budget for CNY dinners in 2021 due to the uncertain economic conditions, based on anecdotal evidences and various media sources.

The further relaxation of social distancing rules will spur economic activities. F&B dining and public transport demand is set to increase as workforce returns to workplaces and more events take place. Our anticipated recovery scenario for F&B is right on track while grocery demand will normalise.

While the spending gap between suburban and central malls continues to be stubbornly wider than expected, we note that the domestic portion of spending had outpaced on a y-o-y basis. This may be partially due to lack of tourist spending (typically ~20% of annual total retail sales) and may lose steam in 2H21 given the strong spending momentum during festivities last year (Nov – Dec 2020) and potential re-opening of our borders for selected destinations (Australia, Hong Kong and Taiwan currently).
The key re-rating catalyst will likely be reopening local borders to big inbound markets such as China that may result in a sharp rerating of our central malls.

We believe the ongoing “re-opening trade” will boost spending allocation towards the pandemic hit sectors which include retail S-REITs. Our picks are the following with their dominant assets which we believe can continue to capture recurring spending and traffic, driving performance in the medium term -

We are positive on ComfortDelGro (SGX:C52) as a key beneficiary of rising public transport usage, taxi and DTL demand.
We are positive on Koufu (SGX:VL6) as workforce returns. Kiosks, Foodcourts at offices and malls will benefit from higher footfall. About 9% of foodcourts are in offices and around 30% are in Malls.
Grocery retailers’ valuation remain attractive despite anticipated tapering of grocery demand.
- Dairy Farm (SGX:D01)'s core forward P/E is < 10x after stripping out the value of Yonghui and RRHI, while
- Sheng Siong (SGX:OV8) is priced attractively at 20x forward P/E, below our target P/E of 25x.
We are negative on Jumbo Group (SGX:42R) as mass tourists have yet to return to Singapore.

Geraldine WONG DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2021-04-06

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