The consumer sector has been relatively unexciting, with both consumer indices FTSE Consumer Goods (FSTCG) and FTSE Consumer Services (FSTCS) showing a muted performance against the FSSTI. As a recap, our coverage had a couple of disappointments from OSIM, Petra Foods and BreadTalk, as weaker economic sentiment from their respective key markets, China and Indonesia, took a toll on performance. We are keeping our NEUTRAL call for the consumer sector given the subdued near term outlook for our stocks’ key markets. Nonetheless, the long-term outlook for regional growth remains supportive, and 2H15 may be better for companies such as OSIM [HOLD, S$1.87] given its new flagship product launch in 2Q. We still favour Sheng Siong Group [BUY, S$0.92] as consumer staples evidently continue to offer stability. We also like Thai Beverage [BUY, S$0.83] for its market dominance in Thailand, while higher ASPs and effective marketing should cement its beer segment’s turnaround and maintain profitability growth.
Sector underperformed the FSSTI
The consumer indices, FTSE Consumer Goods (FSTCG) and FTSE Consumer Services (FSTCS), have had a comparably muted performance against the FSSTI, with YTD returns of -0.7% from FSTCS and 2.9% from FSTCG vs. the FSSTI of 1.6%. As for our preferred picks, Sheng Siong Group and Thai Beverage (Thai Bev), both have outperformed the benchmark with YTD gains of 27% and 10.6% respectively.
Disappointments in 1Q
Topline numbers for consumer stocks under our coverage were still reasonable, but bottom-line performance from OSIM, Petra Foods and BreadTalk did not meet our expectations as the companies continue to incur higher operating costs including gestation expenses. A subdued macro environment took a toll on performance as well as these stocks received a setback from weaker economic sentiment in their respective key markets, namely China and Indonesia.
Weaker economic sentiment took a toll
We understand that China’s inherent growth slowdown, structural changes, and e-commerce growth have contributed to lower footfall in malls, resulting in weaker sales for retail and F&B companies. OSIM and BreadTalk have had muted sales performance and underperforming stores in China. In addition, EIU projects that retail sales in China will see slower growth from 2015 to 2019, due to strong market competition and rising operating costs. Indonesia had a slow 1Q as well, and Petra Foods’ 1Q15 was its first quarter of negative underlying performance in a long while, raising doubts over the sustainability of sales growth for the coming quarters.
Maintain NEUTRAL
We are keeping our NEUTRAL call for the consumer sector given the subdued near-term outlook for our stocks’ key markets. Nonetheless, the long-term outlook for regional growth remains supportive, and 2H15 may be better for companies such as OSIM [HOLD, S$1.87] whose new uMagic chair launched in April as well as further product introductions in the region from June should drive sales for the year. We still favour Sheng Siong [BUY, S$0.92] for its defensiveness. In addition to new stores, we are also confident of the group’s strong management execution in view of its venture into China. While this is not expected to be immediately profitable, the US$6m investment is not significant given its net cash position of ~S$139m. We also like Thai Bev [BUY, S$0.83] for its market dominance in Thailand, with 95% market share for its brown spirits. Higher ASPs and effective marketing should cement its beer segment’s turnaround and maintain profitability growth.
The consumer indices, FTSE Consumer Goods (FSTCG) and FTSE Consumer Services (FSTCS), have had a comparably muted performance against the FSSTI, with YTD returns of -0.7% from FSTCS and 2.9% from FSTCG vs. the FSSTI of 1.6%. As for our preferred picks, Sheng Siong Group and Thai Beverage (Thai Bev), both have outperformed the benchmark with YTD gains of 27% and 10.6% respectively.
Disappointments in 1Q
Topline numbers for consumer stocks under our coverage were still reasonable, but bottom-line performance from OSIM, Petra Foods and BreadTalk did not meet our expectations as the companies continue to incur higher operating costs including gestation expenses. A subdued macro environment took a toll on performance as well as these stocks received a setback from weaker economic sentiment in their respective key markets, namely China and Indonesia.
Weaker economic sentiment took a toll
We understand that China’s inherent growth slowdown, structural changes, and e-commerce growth have contributed to lower footfall in malls, resulting in weaker sales for retail and F&B companies. OSIM and BreadTalk have had muted sales performance and underperforming stores in China. In addition, EIU projects that retail sales in China will see slower growth from 2015 to 2019, due to strong market competition and rising operating costs. Indonesia had a slow 1Q as well, and Petra Foods’ 1Q15 was its first quarter of negative underlying performance in a long while, raising doubts over the sustainability of sales growth for the coming quarters.
Maintain NEUTRAL
We are keeping our NEUTRAL call for the consumer sector given the subdued near-term outlook for our stocks’ key markets. Nonetheless, the long-term outlook for regional growth remains supportive, and 2H15 may be better for companies such as OSIM [HOLD, S$1.87] whose new uMagic chair launched in April as well as further product introductions in the region from June should drive sales for the year. We still favour Sheng Siong [BUY, S$0.92] for its defensiveness. In addition to new stores, we are also confident of the group’s strong management execution in view of its venture into China. While this is not expected to be immediately profitable, the US$6m investment is not significant given its net cash position of ~S$139m. We also like Thai Bev [BUY, S$0.83] for its market dominance in Thailand, with 95% market share for its brown spirits. Higher ASPs and effective marketing should cement its beer segment’s turnaround and maintain profitability growth.
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