Singapore Consumer

DBS Vickers Research, Dec 18

FOLLOWING disappointing Q3 results, we have reduced revenue and net profit growth for consumer companies under our coverage.

We now expect FY2013/14 forecast revenue growth of 4 per cent/7 per cent, from 6 per cent/8 per cent, previously. Coupled with expectations of weaker margins, we project a slower net profit growth of 4 per cent/9 per cent (from 18 per cent/14 per cent), for FY2013 and FY2014, respectively.

Singapore consumer stocks under coverage are not cheap. The sector had re-rated and traded above its historical average mean since early 2012, which in our view was supported by robust topline growth and the market's positive longer- term consumption outlook.

Following concerns of the Fed's tapering and Q3 earnings' disappointment, average valuations have corrected down to +1 SD (standard deviation) above mean, from +2 SD which was seen in early 2013.

Given the lowered growth outlook and slower private consumption growth, de-rating could continue for some stocks should they miss earnings expectations in 2014.

We advocate a selective stance on the Singapore consumer sector for 2014. Amid expectations of slower private consumption growth in 2014, we look to pick stocks for company-specific factors, to outperform within the Singapore consumer space.

We have selected stocks with: 1) stronger fundamentals and better resilience to softening revenue and margin compression; 2) oversold companies at attractive valuations; and 3) stable earnings and dividend payout.

We like OSIM ("buy", target price or TP: S$2.60) for its growth profile and exposure to the North Asia market, Courts ("buy", TP: S$0.77) on expectations of recovery in 2014, and Del Monte ("buy", TP: S$0.82) for being oversold and the uncertainty of its proposed acquisition being priced in. We also like Sheng Siong ("buy", TP: S$0.80) for its defensive traits and yield profile.