Bright spots among Singapore-listed F&B stocks despite potential tightened Covid-19 measures

JUST over a week after the easing of dining and social gathering rules, Singapore-listed food and beverage (F&B) operators are bracing for another round of tightened measures with the emergence of the new Covid-19 variant Omicron.

While any reimposition of social-distancing measures ahead of the holidays and festive season will inevitably hurt the F&B industry, analysts remain positive about reopening and are pointing to players that have a strong presence in heartland areas.

Concerns over the impact of the Covid-19 Omicron variant have threatened to derail the pace of reopening plans globally. In Singapore, Prime Minister Lee Hsien Loong said on Sunday (Nov 28) that the city-state may be forced to roll back the easing of safety measures as it moves forward to tackle the disease.

RE&S Holdings 1G1 , which operates various Japanese food establishments including Ichiban Boshi and Kuriya Japanese Market, said that business has increased by about 20 per cent compared with 3 weeks ago.

"Like many F&B players, we are anticipating high demand during the year-end period, which will provide a much-needed boost to our business. A return to tightened measures will definitely be a hard blow for the industry," said RE&S' senior marketing manager Winnie Loo.

Meanwhile, Sakae Holdings 5DO , which operates the Sakae Sushi restaurant chain, is expecting measures to be tightened if the Omicron variant spreads to Singapore, said Matsui Toshihiro manager of operations, research and development.

Said Andrew Tjioe, president and chief executive Tung Lok Group 540 : "F&B (operators) have been suffering, we should not close unless it is necessary. Otherwise, many businesses will collapse," he said.

However, analysts are more upbeat about the prospects of the industry as businesses are now better prepared to cope with the challenges of the pandemic.

"It is too early to assess the health impact of the new strain. Having said that, the F&B sector is on a stronger footing to deal with uncertainty following the Delta strain. They are also operating in an environment of increasingly supportive policy measures," said Maybank Kim Eng research head Thilan Wickramasinghe.

"While the risk of volatility could be heightened going forward with near-term changes to safe-distancing and dining-in measures, the policy momentum is towards broader reopening. So we think that the F&B sector continues to provide opportunities under the reopening thematic," he added.

Given that border controls are likely to be implemented before the tightening of domestic measures, CGS-CIMB analyst Kenneth Tan is pointing to players such as Kimly 1D0 and Koufu VL6 , which focus on "mass-market dining".

Both Kimly and Koufu have significant presence in heartland areas and would therefore be less affected by any border restrictions, noted Tan.

Work from home measures too will contribute to increased footfall at heartland outlets.

However, Koufu's outlets at tourist spots such as Marina Bay Sands and schools might suffer a larger impact from tightened measures, said Tan.

Jumbo Group 42R is likely to be among the hardest hit. "Historically, Jumbo's customer mix comprises roughly a 3-way split among tourists, locals and business meals. Tighter border measures would impact tourist count, tightening domestic measures would impact business meals and locals," said Tan.

But the group has since expanded to tap opportunities in the local hawker scene, which could help cushion the impact, he added.

"We think players such as Koufu may experience lower footfall in the near-term if tighter measures are introduced," said Wickramasinghe.

Nevertheles, they have strong balance sheets and had remained resilient in the face of earlier variants such as Delta, he said.

He added that the push towards reopening in a Covid endemic environment is supportive of medium-term recovery in footfall and higher operating leverage.

Indeed, having been through several rounds of social distancing measures and lockdowns, F&B players said that they are now quicker to adapt than before.

ST Group Food Industries DRX , for instance, is not anticipating business conditions in its core markets in Australia and New Zealand to be tougher than the previous year.

This is given that the company had been "in and out of lockdown since July last year", said chief executive officer Saw Tat Ghee.

ST Group Food Industries had implemented measures which allowed them to continue operating in a "safe and responsible" manner as well as to "react and respond swiftly in the event of an infection", the group said in its annual report.

RE&S, on the other hand, had poured resources into enhancing its delivery and takeaway offerings This includes integrating its rewards loyalty programme into its online ordering systems as well as introducing new festive bundles suitable for home consumption.

Likewise, Sakae Holdings is ready to "accommodate the new normal by bringing affordable, fresh, restaurant-quality food from restaurant to home".

READ MORE:

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• Singapore economy still on track to grow, despite Omicron risk
• Listed F&B players find new recipes beyond dine-in business