Phillip 2018 Singapore Strategy: Consumer Sector December 19, 2017 1650

This report is part of the Phillip 2018 Singapore Strategy Report.

  • Retail Sales Index ex-Motor Vehicles accelerated to +3.0% YoY in 3Q17 from +2.2% in 2Q17 and -0.7% in 1Q17
  • Food & Beverage Index accelerated to +3.6% YoY in 3Q17 from -0.6% in 2Q17 and -0.5% in 1Q17
  • Consumer spending picks up pace in 3Q17 as economic growth fundamentals remain robust; Momentum to continue, translating into higher earnings to drive share price in 2018
  • We maintained our Overweight view on Singapore Consumer Sector

2017 Review

Consumer sector was weighed down by weak 1H17 results. Nevertheless, a recovery in 3Q17 results revived market optimism. As we had advocated in our SG Consumer report: Loosening purse string in Apr-17, retail sales* has turnaround and have been improving since then.

* We exclude car sales in measuring retail sales. Car sales is affected by the supply of certificates of entitlement (COE) and government policies.

Trailing 12M average retail sales ex-motor vehicles +0.8% YoY in Oct-17, as compared to -3.8% a year ago. Meanwhile, trailing 12M food & beverage sales index -2.1% YoY in Oct-17, as compared to -2.8% a year ago.

Both FTSE Straits Times Consumer Goods Index and FTSE Straits Times Consumer Services Index underperformed the Straits Times Index over the past 1-year.


With Singapore economy growth gaining momentum, it will lend support to the labour market, wage growth and consumer confidence. This in turn will fuel consumer spending.

Rosier outlook for Singapore economy:

  1. The upswing in global trade has led to increasing manufacturing activity, followed by a broadening of the recovery across industries.
  2. The Ministry of Trade and Industry (MTI) of Singapore expects 2017 economic growth to come in at 3.0-3.5% range, and expansion to remain steady at 1.5-3.5% in 2018.

All stars aligned for Consumers sector to take earnings and stock prices higher. Bright spots in retail space: (a) Supermarkets; and (b) Luxury goods


We remained our Overweight view on Singapore Consumer Sector, in anticipation of brighter Singapore economy outlook to spur broad expansion across sectors, lift job and wage growth, thus fuelling consumer spending.

Consumer Staples

Recovery in domestic demand to provide drive earnings.

Both supermarket operators Sheng Siong (Buy/TP: S$1.13) and Dairy Farm (Buy/TP: US$9.89) are expanding their store counts to drive the topline. Margins should continue to improve from better economies scale, improved operating efficiencies from central warehouse, and ramping up fresh product offerings. Fresh products have higher margins compared to groceries and the least vulnerable to Amazon’s threat.

We also like Old Chang Kee (Buy/TP: S$0.98). The homegrown curry-puff producer will be completing its transformation by Dec-17. Successful integration with the new factory would be an inflection point for OCK. Its new factory will yield manufacturing efficiencies and increase capacity to fuel its expansion domestically and regionally.

Thai Beverage (Buy/TP: S$1.18) and FNN (Accumulate/TP: S$2.83) are tapping onto the fast-growing emerging markets such as Cambodia, Myanmar, Laos and Vietnam. Both beverage giants are on an acquisition spree.




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About the author

Profile photo of Soh Lin Sin

Soh Lin Sin
Investment Analyst
Phillip Securities Research Pte Ltd

Lin Sin has been an investment analyst in Phillip Securities Research since June 2014, where she started as an economist, focusing on China and ASEAN macroeconomics. Currently, she covers primarily the Consumers and Healthcare sectors in Singapore equities market.

She graduated with a Bachelor of Science in Mathematics and Economics from NTU.

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