Samantha Chiew Thu, Jul 07, 2022
Several stocks are coming off their pandemic highs. While they may not see a record growth year anytime soon, analysts believe that thanks to inflation, these stocks will remain to be relevant and still have room to grow.
One such stock would be supermarket operator Sheng Siong Group, which was the beneficiary of panic buying across the country as consumers raced to stock up on groceries as they prepared for the lockdown and feared leaving the house.
In the past 12 months, shares in Sheng Siong are trading flat at $1.57 on July 5 but is trading 7.5% higher year to date. The panic buying has indeed stopped and shelves at the supermarkets are well stocked but DBS is still positive on the company’s outlook as the reality of inflationary pressures is likely to set in for consumers.
“While the reopening will provide a boost to Singapore retail sales figures in the months ahead, particularly for May, we need to be cognisant of potential spending pattern changes ahead,” says DBS.
According to a survey conducted by DBS, inflation has the upper hand, compared to the reopening and consumers are holding the shorter end of the rope and taking a defensive stance in their spending. Hence, spending behaviour is changing and/or expected to change as consumers focus on basic needs kick in and prioritise household necessities in spending.
Sheng Siong remains the top pick of DBS in the consumer sector as it believes grocery companies could enjoy a second wind in their sails in the heightened inflationary environment as the research house’s survey reinforces its view that consumption remains resilient. In addition, the availability of house brands, large store network and a wide array of products provide pricing and bargaining power, as well as allow costs to be passed on.
DBS also likes DFI Retail Group Holdings, the new name of Dairy Farm International, from May. Part of the Jardine conglomerate, DFI has a more diversified exposure with many different brands catering to different market segments, including Hong Kong and China. However, DBS prefers Sheng Siong more for its mass-market positioning and heartland exposure.
Kimly too is noteworthy according to DBS, which has a “buy” on the stock with a target price of 50 cents, as analyst Paul Yong likes the stock for its undemanding valuation of 12x FY2022 PE, which is about 0.5 SD below its five-year mean of 15x, as well as the stock’s strong profit growth, cash flow and dividend yield. He also likes Kimly for its Tenderfresh acquisition, which he expects should contribute positively to the company’s FY2022 ending September.
On the other hand, CGS-CIMB Research notes that the reopening will see more people back in offices and away from the heartlands although this could be cushioned by inflation pressures, which could then lead a downtrend of consumers selecting cheaper dining options. The relaxation of social management measures could also benefit Kimly’s zichar and drinks sales. CGS-CIMB has downgraded its call on Kimly to “hold” from “add” with a lower target price of 41 cents from 54 cents.
