Chart of the Day: See how mounting cost pressures whittled down Singapore’s corporate earnings

The F&B, retail and hotel industries are struggling.

Singapore companies continue to be affected by the labour crunch that resulted from the government’s foreign labour tightening policies. This has affected the labour intensive services and construction sectors.

A report by DBS reveals that the F&B, retail and hotel industries are among those affected. Challenges from rising rents, as well as labour cost and shortages are flagged. Meanwhile, foreign worker levies in the construction sector had just increased in July 2014 and will rise further in July 2015. DBS does not expect these cost pressures to abate anytime soon.

In addition to higher operating cost in Singapore, other challenges affecting margins and earnings are: a) currency volatility which would impact Singapore companies seeking global or regional exposure, b) higher raw material cost affecting consumer companies, although this should ease towards end-2014 as selected commodity prices such as CPO have peaked and are headed south, c) geopolitical risks affecting oil prices and d) strong SGD eroding the competitiveness of Singapore companies, affecting top-line growth.

As mounting cost pressures whittled down corporate earnings in general, we believe companies that are able to enhance or even defend margins will outperform. These would be companies (a) focused on product innovation and strong brand equity; (b) with strong track records in project execution and achieving productivity gains; (c) with strong positioning in a niche market; (d) which have early mover advantage to tap on new market opportunities; and (e) with efficiency in cost management.