All of our selected countries saw lower consumer confidence levels QoQ in 4Q14 but stayed in the optimistic territory except for Malaysia, possibly in relation to the GST implementation this April. Challenges will remain in the short-term but we continue to be optimistic on the regional consumption outlook in the longer-term, underpinned by supportive policy reforms and accelerated government spending. Thus we maintain our NEUTRAL stance for the consumer sector. We also note that the FSTCG index (which includes Thai Beverage) forward PER level is no longer trading at a 1 s.d. premium since its run-up from Aug-14. Perhaps it is time to re-consider consumer counters, and within our coverage, we continue to favour Sheng Siong Group [BUY, S$0.81] for their strong management execution and sustainable margins. We also like Thai Beverage [BUY, S$0.80] as we believe its long-term growth story is intact, with benefits to be reaped from further synergies and collaboration with its entities.
Steadier start compared to previous year
The FTSE Consumer Services (FSTCS) Index trailed the FSSTI with a YTD gain of 0.1% vs FSSTI of ~1.0%, while the FTSE Consumer Goods (FSTCG) stayed largely flat over the past three months. We did see some rally at the end of Jan-15, likely attributable to the ECB’s announcement of a better-than-expected stimulus package among other factors. We note that the FSTCG index (which includes Thai Beverage) forward PER level is no longer trading at a premium of more than 1 s.d. above their 2-year historical averages since its run-up from Aug-14. Perhaps it is time to re-consider consumer counters with relatively attractive valuations and strong fundamentals.
Mixed performance with our coverage
FY14 topline growth was largely within street’s expectations for most of the counters under our coverage, and some (Sheng Siong, Thai Beverage) showed good management of gross profit margin while others (OSIM) continued to see pressure on operating margin. There were no drastic changes to prices in the past month, except for BreadTalk with a 9.1% loss YTD, possibly due to the group’s disappointing 4Q results that took a toll on its full-year performance.
Government reforms to support regional consumption
All of our selected countries saw lower consumer confidence levels QoQ in 4Q14 according to data from Nielsen. Levels were still in the optimistic territory (i.e. at least 100), whereas the lowest level at 89 came from Malaysia as usual, signifying further pessimism, possibly in relation to the GST implementation this April. Challenges also persist for Thailand amid falling commodity prices as retail sales YoY growth remained negative for the last quarter of 2014. While our counters (OSIM, BreadTalk) had a weaker performance for their Chinese segments, we note that Chinese macro retail sales growth held steady at ~12% YoY in 4Q14. All considered, we continue to be optimistic on the outlook in the longer-term, underpinned by supportive policy reforms and accelerated government spending in the region.
Maintain NEUTRAL
We maintain our NEUTRAL stance for the consumer sector given the short-term macro challenges faced by regional countries. Within our coverage, we continue to favour Sheng Siong Group [BUY, S$0.81] for their strong management execution and sustainable margins amid an amicable tone in the local supermarket industry. We also like Thai Beverage [BUY, S$0.80] following its decent FY14 performance and a final dividend surprise giving a 3.5% yield. We believe its long-term growth story is intact, with synergy benefits to be reaped from further collaborations with its entities. On the other hand, we do not see a near-term catalyst yet for OSIM [HOLD, S$1.97] and valuations are not sufficiently attractive for Petra Foods [HOLD, S$3.78] and BreadTalk [SELL, S$1.02].
The FTSE Consumer Services (FSTCS) Index trailed the FSSTI with a YTD gain of 0.1% vs FSSTI of ~1.0%, while the FTSE Consumer Goods (FSTCG) stayed largely flat over the past three months. We did see some rally at the end of Jan-15, likely attributable to the ECB’s announcement of a better-than-expected stimulus package among other factors. We note that the FSTCG index (which includes Thai Beverage) forward PER level is no longer trading at a premium of more than 1 s.d. above their 2-year historical averages since its run-up from Aug-14. Perhaps it is time to re-consider consumer counters with relatively attractive valuations and strong fundamentals.
Mixed performance with our coverage
FY14 topline growth was largely within street’s expectations for most of the counters under our coverage, and some (Sheng Siong, Thai Beverage) showed good management of gross profit margin while others (OSIM) continued to see pressure on operating margin. There were no drastic changes to prices in the past month, except for BreadTalk with a 9.1% loss YTD, possibly due to the group’s disappointing 4Q results that took a toll on its full-year performance.
Government reforms to support regional consumption
All of our selected countries saw lower consumer confidence levels QoQ in 4Q14 according to data from Nielsen. Levels were still in the optimistic territory (i.e. at least 100), whereas the lowest level at 89 came from Malaysia as usual, signifying further pessimism, possibly in relation to the GST implementation this April. Challenges also persist for Thailand amid falling commodity prices as retail sales YoY growth remained negative for the last quarter of 2014. While our counters (OSIM, BreadTalk) had a weaker performance for their Chinese segments, we note that Chinese macro retail sales growth held steady at ~12% YoY in 4Q14. All considered, we continue to be optimistic on the outlook in the longer-term, underpinned by supportive policy reforms and accelerated government spending in the region.
Maintain NEUTRAL
We maintain our NEUTRAL stance for the consumer sector given the short-term macro challenges faced by regional countries. Within our coverage, we continue to favour Sheng Siong Group [BUY, S$0.81] for their strong management execution and sustainable margins amid an amicable tone in the local supermarket industry. We also like Thai Beverage [BUY, S$0.80] following its decent FY14 performance and a final dividend surprise giving a 3.5% yield. We believe its long-term growth story is intact, with synergy benefits to be reaped from further collaborations with its entities. On the other hand, we do not see a near-term catalyst yet for OSIM [HOLD, S$1.97] and valuations are not sufficiently attractive for Petra Foods [HOLD, S$3.78] and BreadTalk [SELL, S$1.02].
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