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Broker's take: DBS expects soft consumer sentiment in 2020; favours ThaiBev, Koufu
THE outlook for the Asean consumer sector this year is likely to be dampened by macroeconomic headwinds and soft consumer sentiments, although "green shoots" of recovery are starting to emerge for Singapore, according to DBS Group Research.
"2019 has been buffeted by trade uncertainties and dampening economic growth to a certain extent. For one, Singapore's GDP (gross domestic product) growth was revised down to 0.6 per cent from 3 per cent a year ago," DBS analysts wrote in a note on Monday.
Notwithstanding a "Phase One" trade deal, DBS economists believe trade tensions and overall rivalry between the US and China are unlikely to dissipate this year.
"In Asean, growth is expected to be a mixed bag – Singapore, Malaysia and Thailand to see a pick-up in GDP growth in 2020, but below the countries' historical trends," DBS said.
Singapore's economy struggled last year amid headwinds from the US-China trade war and an electronic down-cycle. "However, we are seeing green shoots for a gradual improvement in growth prospects, as the economic growth cycle may have bottomed," said DBS economist Irvin Seah. Mr Seah added that GDP growth for the Republic is expected to register at 1.4 per cent in 2020, below Singapore's potential growth rate, but higher than the projected 0.6 per cent for 2019.
Asean consumer plays this year are likely to see resilience, staple food consumption, earnings inflexion or growth and/or attractive valuations, as well as Vietnam exposure, according to DBS.
The analysts' consumer stock picks for 2020 include Singapore-listed Koufu Group, Thai Beverage Public Co (ThaiBev) and Delfi Ltd. Elsewhere in the region, they favour Thailand's CP ALL, Indonesia's Indofood Sukses Makmur and Kino Indonesia Tbk, as well as the Philippines' Universal Robina and Robinson Retail Holdings.
DBS maintained its "buy" recommendation for food court and coffee shop operator Koufu, with a target price of S$0.88. As at 10am on Monday, the counter was trading at S$0.77, down 0.5 Singapore cent or 0.7 per cent.
"We like Koufu for its stable earnings, decent yield of 3.4 per cent, decent cash flow generation, strong balance sheet and steady store expansion plans," the analysts wrote. They added that Koufu's store expansion is expected to continue with two new food courts due to open in fiscal 2020, including one in Macau.
Meanwhile, DBS also maintained its "buy" call on ThaiBev, with a target price of S$1.04. The positive outlook for ThaiBev is based on a forecast 11 per cent growth in net earnings for fiscal 2020, improved contributions from its Vietnamese unit Sabeco, as well as potential monetisation of its assets, the DBS analysts noted.
As at 10.12am on Monday, ThaiBev shares were trading at S$0.885 on a cum-dividend basis, down one Singapore cent or 1.1 per cent.
As for confectionary maker Delfi, DBS gave a "buy" rating with a target price of S$1.51, as it expects Delfi's earnings to improve. "We like Delfi for its attractive valuations vis-à-vis an earnings turnaround traction," the analysts wrote. "We believe the company is also a potential takeover target for its dominance in Indonesia’s general trade channel for chocolate confectionery."
Delfi shares were trading flat at S$1.00 as at 10.45am on Monday.