Food & Beverages - CGS-CIMB Research 2021-09-27: Heartlands Is The Winner

Singapore F&B Sector - CGS-CIMB Research | SGinvestors.io JUMBO GROUP LIMITED (SGX:42R) KOUFU GROUP LIMITED (SGX:VL6) KIMLY LIMITED (SGX:1D0)

Food & Beverages - Heartlands Is The Winner

  • Dine-in measures in Singapore have been tightened to a maximum of 2-pax per group. Work-from-home and home-based learning are the default.
  • Heartlands F&B outlets (coffee shops and food courts) should benefit from the heightened footfall amid work-from-home arrangements.
  • Tightening measures are a negative for both Jumbo (SGX:42R) and Koufu (SGX:VL6). Kimly (SGX:1D0) is our sector top pick given its high exposure to the heartlands.



Dine-in measures tightened once again

  • Due to rising COVID-19 cases within the community, the Singapore government has introduced enhanced safety measures from 27 Sep 21 to 24 Oct 21, which entails reverting to 2-pax dine-in for all F&B outlets (vs. 5-pax dine-in previously for outlets that are not hawker centres or coffee shops). Work-from-home (WFH) has been reinstated as the default.
  • Home-based learning (HBL) will also be the default for all primary and special education schools. The tight measures were implemented to prevent further infections and buy time for Singapore to scale up its home recovery and home care services.


Mass-market dining options in the heartland to benefit

  • We believe mass-market F&B outlets located in the heartlands could see footfall bolstered by
    1. more employees working from home, and
    2. students engaged in HBL.
  • Kimly (SGX:1D0) could benefit slightly, as it has the highest heartlands exposure via its diverse network of coffee shops (~78% of outlets are in the heartlands).
  • Meanwhile, we think the tightened measures are slightly negative for Koufu (SGX:VL6), due to food courts only allowing 2-pax per group (vs. 5-pax previously) and lower footfall for outlets located in malls, tourist hotspots, and schools.
  • Jumbo (SGX:42R) should be most impacted given its focus on the mass premium market and having the bulk of its outlets located in non-heartland areas.


Tightening measures since Mar 2021, F&B industry reeling

  • The Singapore F&B service index peaked in Mar 21 as footfall recovered amid Phase 3 measures (28 Dec 20 – 7 May 21) where up to 8 patrons per group were allowed to dine-in. Since then, the index has fallen steadily in line with tightening distancing measures in Singapore.
  • As of latest figures in Jul 21, restaurants are still suffering (-22% y-o-y), while cafes, food courts and other eating places were relatively resilient with +7% y-o-y growth, albeit still lower vs pre-COVID levels. We also note that the demand for online food delivery has been structurally growing (Fig. 7), which bodes well for companies with established online presence.

Remain NEUTRAL on the sector, outlook still uncertain

  • We stay neutral on the sector as the pace of reopening remains uncertain. We reiterate Kimly (SGX:1D0) as our top F&B pick as the group’s diverse network of heartland coffee shops should allow for continued strong footfall amid the structural shift towards hybrid work arrangements.
  • Upside risks include M&A opportunities to drive inorganic growth.
  • Downside risks include prolonged lockdowns.





Kenneth TAN CGS-CIMB Research | ONG Khang Chuen CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-09-27
SGX Stock Analyst Report HOLD MAINTAIN REDUCE 0.30 SAME 0.200
ADD MAINTAIN ADD 0.800 SAME 0.800
ADD MAINTAIN ADD 0.460 SAME 0.460



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