Singapore Consumer Monthly: The Chinese New Year effect March 16, 2018
The timing of Chinese New Year has distorted the Jan-18 data points; Await Feb-18 data for a clearer picture
Expect 2018 FIFA World Cup to boost beer sales in Thailand and Vietnam; ThaiBev and FNN would benefit from the strong demand in Vietnam
We maintained our Overweight view on Singapore Consumer Sector
Holding breath for Feb-18’s data. Due to the timing difference of Lunar New Year (Feb-18 vs Jan-17), retail sales in Supermarkets and Department Stores in Hong Kong and Singapore slowed in Jan-18. While we took the slowdown lightly, the February data would confirm if the robust momentum from Dec-17 extends into 2018.
Retail sales in China remains robust with heightened consumer confidence. Rising optimism should continue to propel consumers spending at c.10% growth this year.
Hong Kong retail sales growth continued its momentum from 2H17, buoyed by continued revival of inbound tourism, upbeat consumption sentiment amid favorable employment and income conditions.
Singapore retail sales, excluding motor vehicle sales, declined1% YoY in Jan-18. Food & beverages services also decreased 4.0% YoY. These were mainly due to a higher base in Jan-17 as CNY (Chinese New Year) fell in Jan last year as compared to Feb this year. Notably, Furniture & Household Equipment sales has been on growing since 2H17, possibly spurred by the upswing in housing market.
Persistent weakness in Indonesia retail landscape despite a rising optimism and lower inflation.
Malaysia retail sales has rebounded, growing at a faster pace of 8.5% in Jan-18 compared to 7.8% growth in Dec-17.
We expect the upward trajectory to sustain, as inflation pressure is likely to moderate with a firmer global oil prices, thus a less volatile retail fuel prices. Core inflation, which excludes volatile and administered price items, remained relatively stable. In addition, the upcoming election campaign could spur consumer spending.
Thailand private consumption continued to improve in Jan-18 on the back of stronger consumer sentiment and tourism recovery. However, consumer sentiment dropped for the first time in seven months in Feb-18 on low commodity prices and political uncertainty. A more broad-based economic recovery and a better farmers’ income would strengthen consumer confidence. Election is scheduled to take place before Feb-19.
Most major industries in Philippines expanded in Jan-18, driving up Net Sales Index. Textiles, Footwear and wearing apparel, Fabricated metal products, Furniture and fixtures, as well as Wood and wood products, were held back.
Vietnam retail sales growth for Jan-Feb increased 10.1% YoY, driven by the weeklong CNY. However, competition might intensified with Amazon entering into Vietnam via partnership with the Vietnam E-commerce Association (VECOM). VECOM is the largest consortium of local online sellers in Vietnam, comprising 140 local online businesses. The partnership would allow more Vietnamese sellers to sell and export via Amazon, and vice versa. Lazada is currently the biggest e-tailer in Vietnam.
Waiting for the beer boost from 2018 FIFA World Cup. With Russia being the host this year, we would see more favourable kick-off times this season, which coincide with the peak drinking hours in ASEAN. Russia’s time zone is 5 hours after Singapore’s, 4 hours after Thailand’s and 3 hours after Vietnam’s. Russia’s time zone is comparable to Germany’s and South Africa’s. The first game will kick start in 14 Jun-18, and the final is scheduled to be on 15 Jul-18. Beer sales from Thailand and Vietnam could grow by c.10% this year (see Figure 18 and Figure 20).
Structural growth in Vietnam a boost for ThaiBev and FNN.
Notwithstanding the 2018 FIFA World Cup effect, Thai Beverage is likely to benefit from the insatiable Vietnamese beer demand.
Vietnam beer sales has crossed the 4bn litres mark in 2017, closing in to the target of 4.1bn litres by 2020. The master plan of the Ministry of Industry & Trade expect beer production to reach 5.5bn litres by 2035.
Saigon Alcohol Beer and Beverage (Sabeco) has produced more than 1.73bn litres of beer in 2017 (+8% YoY). It expects production to reach 1.8bn litres and 2bn litres by 2018 and 2019 respectively. Sabeco’s results will be consolidated into ThaiBev’s 2Q18 results.
On a separate note, competition may intensify in Vietnam. Vietnam government plans to sell its stake in Habeco (Hanoi Beer Alcohol Beverage), the second largest brewer in Vietnam, in the first quarter this year. Carlsberg, which currently has c.17.5% stake in Habeco, is seeking to acquire more stakes. Habeco currently trades at c.40x forward PER.
Meanwhile, Dairy demand in Malaysia saw persistent weakness. On a brighter note, Dairy demand in Thailand has shown sign of recovery. Having said that, the strong demand for milk in Vietnam should support the FNN’s Dairies profitability. FNN continues to accumulate its interest in Vinamilk. Currently it has c.19.5% stake in Vinamilk.
Maintain Overweight on Consumer Sector. Brighter regional economy outlook would lift job and wage growth, thus fuelling consumer spending.
Both supermarket operators Sheng Siong (Buy/TP: S$1.13) and Dairy Farm(Buy/TP: US$9.83) are expanding their store counts to drive 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). It has completed its transformation in Dec-17. Successful integration with the new factory would be the 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$1.05) and FNN (Buy/TP: S$2.83) are tapping onto the fast-growing emerging markets such as Cambodia, Myanmar, Laos and Vietnam (CMLV). Both beverage giants should benefits on their recent acquisitions.
North Asia and ASEAN Retail Landscape at a Glance
About the author
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.