Not all-gloomy: retail sales shift to supermarkets

Sheng Shiong’s and Dairy Farm’s earnings would likely grow by around 3%.

As local communities are panicking over the COVID-19 pandemic, retail demand has turned to supermarkets as grocery sales followed the same boost seen during SARS in 2003, according to DBS Group Research.

Travellers being grounded in Singapore amidst regional travel restrictions is also another driver of demand.

Amongst supermarket giants, Sheng Shiong is projected to deliver a 3%-11% growth in its FY2020 earnings, supported by the strong performance of new stores, demand from the stay-home population, and the fact that only 1% of its operations are in China.

Meanwhile, Dairy Farm could see its FY2020 earnings inch up 3%, thanks to increased food consumption at home and healthcare products, as well as to random panic-buying locals.

“We are positive on Sheng Siong as a leading mass-market supermarket player in Singapore and a beneficiary of supermarket sales. We like Dairy Farm for its attractive valuations as its share price has corrected to the -2SD level since our last note. Regional demand for its Supermarkets and Health & Beauty products especially sanitisers, supplements, and over-the-counter drugs are expected to do well,” said Alfie Yeo, analyst at DBS Group Research.

The report cited SingStat’s latest data on retail sales, where it edged up 0.6% YoY (excluding motor vehicle sales) led by supermarkets, food & alcohol, mini-marts and convenience stores, apparel and footwear, cosmetics, toiletries and medical goods, watches & jewelry and petrol stations. 

F&B food services also rose strongly at 9.1% YoY as sales went up amongst fast food, restaurants and food caterers. However, this was only due to increased Chinese New Year spending and DBS warned that there will be a marked reduction in spending patterns as demand favours more essential items in pharmacies and supermarkets.

Jumbo Group could be amongst the worst-hit in this segment, with DBS forecasting a 58% cut in earnings for FY2020. This comes on the back of the restaurant chain’s significant exposure to China and tourists in Singapore.

On the other hand, the impact on BreadTalk Group could be less, but earnings may still go down by 11% over the same period. The report noted that 30% of its profits stems from China, whilst 26% of sales is contributed by its full-service chain Din Tai Fung.