Singapore Consumer 2014 Outlook -
Be discerning in 2014
• Advocate selective and bottom-up strategy for 2014
• FY14F overall earnings growth was reduced by 5ppts to 9% on slower private consumption and margins
• Possible de-rating risks for certain stocks if earnings continue to underperform, with average valuations at +1SD above historical mean
• Selective stock picks are Osim for growth, Courts and Del Monte for being oversold and Sheng Siong for yield
• Technicals - Courts and Del Monte look ripe for bargain hunting. Rebound potential for Courts to $0.715, Del Monte to $0.665 or $0.72
Lowered FY14F growth post-3Q results
Following disappointing 3Q results, we have reduced revenue and net profit growth for consumer companies under our coverage. We now expect FY13F/14F revenue growth of 4%/7%, from 6%/8% previously. Coupled with expectations of weaker margins, we project a slower net profit growth of 4%/9% (from 18%/14%), for FY13F and FY14F respectively.
Sector at +1SD above mean; further de-rating risks if stocks miss earnings expectations
Singapore consumer stocks under coverage are not cheap. The sector had re-rated and traded above its historical average mean since early 2012, which in our view was supported by robust top line growth and the market’s positive longer term consumption outlook. Following concerns of the Fed’s tapering and 3Q earnings’ disappointment, average valuations have corrected down to +1SD above mean, from +2SD which was seen in early 2013. Given the lowered growth outlook and slower private consumption growth, de-rating could continue for some stocks should they miss earnings expectations in 2014.
Advocate selective stance and bottom-up strategy
We advocate a selective stance on the Singapore consumer sector for 2014. Amid expectations of slower private consumption growth in 2014, we look to pick stocks for company specific factors, to outperform within the Singapore consumer space.
We have selected stocks with: 1) Stronger fundamentals and better resilience to softening revenue and margin compression; 2) Oversold companies at attractive valuations; and 3) Stable earnings and dividend payout.
We like Osim [O23.SI] (BUY, TP: S$2.60) for its growth profile and exposure to the North Asia market, Courts [RE2.SI] (BUY, TP: S$0.77) on expectations of recovery in 2014 and Del Monte [D03.SI] (BUY, TP: S$0.82) for being oversold and the uncertainty of its proposed acquisition being priced in. We also like Sheng Siong [OV8.SI] (BUY, TP: S$0.80) for its defensive traits and yield profile.
From a technical perspective, shares of Courts & Del Monte look ripe for bargain hunting following their price decline in recent month. We see support for Courts at $0.58 and Del Monte a $0.585, which are at current levels. Beyond the immediate term, there is rebound potential for Courts to $0.715 (23.6% upward retracement) and Del Monte to $0.665 (23.6% upward retracement) or $0.72 (38.2% upward retracement). The current year-end lull provides a good opportunity to bargain both Courts & Del Monte while at their oversold situation.
Publish date: 18/12/13