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ASEAN Grocery Retail Regional Industry Focus ASEAN Grocery Retail Refer to important disclosures at the end of this report DBS Group Research . Equity 17 Apr 2018 Shop with a top-down approach STI : 3,497.19 KLCI : 1,878.76 SET : 1,767.17 JCI : 6,286.75 December quarter earnings ended mixed as Thailand PCOMP : 7,870.25 and Singapore outperformed Indonesia and Philippines Analyst Alfie YEO +65 6682 3717 Positive on Singapore and Thailand’s modern grocery [email protected] retailers based on country fundamentals Andy SIM, CFA +65 6682 3718 Adopt top-down stock-pick strategy on markets with [email protected] firm fundamentals CHEAH King Yoong +60 32604 3908 Sector top picks are SSG, DFI, BJC and CPALL [email protected] December-ended quarter earnings were mixed. Earnings for Namida Artispong +66 2857 7833 [email protected] ASEAN grocery retailers in the December-ended quarter saw Thailand exceeding expectations, Singapore-listed grocers’ Tiesha PUTRI +6221 30034931 [email protected] earnings in line, Indonesia and Philippines grocers underperforming. The varied country performances were Regional Research Team largely a function of domestic consumption fundamentals and operating environment. Domestic fundamentals for grocery retail in Singapore and Thailand remain strong, while that for Indonesia and Philippines were weaker. Fundamentals for Singapore and Thailand remain strong. STOCKS We are most bullish on Singapore and Thailand grocery retail 12-mth Price Mkt Cap Target Price Performance (%) markets across ASEAN. In Singapore, there is more room for Bt US$m Bt 3 mth 12 mth Rating growth as HDB has lined up at least 11 new supermarket properties for bidding over the next six months. Although CP ALL 87.00 25,043 95.00 N.A N.A BUY Berli Jucker Public 56.25 7,205 70.00 N.A N.A BUY online grocery retail is a fast-growing segment, its market DairyCo. Ltd Farm 8.27 11,186 9.77 2.0 (4.7) BUY share remains low at <3% of the whole grocery market. In Sheng Siong 1.01 1,159 1.20 9.2 2.0 BUY Thailand, we expect better macro fundamentals and broad- MatahariGroup Ltd Putra 394 154 380 (7.5) (60.6) HOLD based recovery including better public investment, investment RobinsonsPrima Retail 84.00 2,236 87.00 (14.2) 7.7 HOLD PuregoldHoldings Price 51.95 2,761 44.30 (3.8) 23.1 UNDER sentiment, and industrial capacity to support consumption Club REVIEW growth. 7-Eleven 1.48 423 n/a (2.6) (12.4) NR Mynews Holdings 1.50 263 n/a 0.7 39.5 NR Advocate top-down stock-pick strategy. Our stock picks are formulated via a top-down approach, as the operational Source: DBS Bank, DBSVTH, DBSVI, First Metro Securities, Bloomberg Finance environment, demand as of December-ended quarter remain L.P. weak for Indonesia, Philippines and Malaysia, while Thailand Closing price as of 16 April 2018 and Singapore offer the best macro environment for grocery stocks to deliver earnings growth. Top picks. Sector valuations are at 27x forward PE. Top picks are Dairy Farm [DFI SP, BUY], Sheng Siong [SSG SP, BUY], Berli Jucker [BJC TB, BUY] and CP ALL [CPALL TB, BUY]. We upgraded Dairy Farm’s target price and downgraded Robinsons Retail Holdings after its deal with Robinsons Retail Holdings to sell Rustan Supercenter Inc. for an 18% stake in RRHI. We have Robinsons Retail and Matahari Putra on HOLD given that they are showing lacklustre operational performance due to weak demand and challenging cost conditions. ed: TH / sa:YM, PY, CS Page 1 Industry Focus ASEAN Grocery Retail Table of Contents Results review – Strong performance from Singapore and Thailand grocers 3 Singapore – No online threat, more upcoming HDB shops to be available for bidding 6 Thailand – Improving economy to support consumption 9 Indonesia – Weak operating environment 12 Malaysia – Cost challenges with high valuation 14 Philippines – Inflation and tax reform to dampen outlook 16 Company Guides 19 CP ALL Berli Jucker Public Co. Ltd Dairy Farm Sheng Siong Group Ltd Matahari Putra Prima Robinsons Retail Holdings Page 2 Page 2 Industry Focus ASEAN Grocery Retail Results review – Strong performance from Singapore and Thailand grocers ASEAN saw mixed earnings for quarter-ended December 2017 Moderately strong SSSG for most grocers which disclosed their figures. Same-store-sales growth (SSSG) was generally 4Q17 results were mixed. December-ended quarter saw mixed positive across ASEAN for major modern grocery retailers. The results with companies’ earnings performance tied strongly to only exception was 7-Eleven Malaysia which saw a negative their domestic economies. Singapore- and Thailand-listed stocks SSSG due to a weak retail environment. SSSG continued to be generally performed well while those in Indonesia, Malaysia and within reasonable levels of 0-5%. Sheng Siong, BIG C (Berli Philippines reflected challenges in their respective domestic Jucker) and CP All were the strong performers. markets. SSSG generally positive except for 7-Eleven Malaysia ASEAN Grocers' December 2017-ended results 20.0% Big C Supercenter Siam Makro Dec-end result Note CP ALL Sheng Siong Sheng Siong In line Gross margins improved 7-Eleven Malaysia RRHI Dairy Farm In line Core profit in line CP All Above Lower taxes Berli Jucker n/a New coverage Alfamart n/a Not covered Matahari Prima Putra Below One-off inventory clearance Discontinued unprofitable sales Puregold In line Margin decline including bulk sales of alcohol, cigarettes and discount coupons Robinsons Retail Below Dragged by department store for other bulk merchandise. 7-Eleven n/a Not covered -25.0% Mynews Holdings n/a Not covered 1Q142Q143Q144Q141Q152Q153Q154Q151Q162Q163Q164Q161Q172Q173Q174Q17 Source: DBS Bank Source: DBS Bank Thai and Singapore grocers outperforming the rest of ASEAN. Long-term consumer sentiment generally positive. General Singapore stocks saw relatively stable demand environment, consumer sentiment in ASEAN remains buoyant compared to with concerns over online threat yet to come through as two years ago. The longer-term trend remains generally consumer demand continues to be largely in-store. Thailand positive, though we may have seen short-term weaknesses in has shown strong demand and store growth with companies some markets in recent quarters. Except for Philippines which showing better margins. Malaysia has been difficult with is implementing tax reform and Indonesia, quarterly consumer challenging cost environment. Indonesia has seen slowdown sentiment saw an uptick in Malaysia and Thailand based on in demand and slowing outlook for store expansion. the latest data. Philippines's results were poor on weak demand and tax reform package will likely dampen volume sales of products Better regional consumer sentiment than two years ago such as carbonated drinks. 130 50 Key recommendation changes 120 40 Stock Rating Rating TP 110 30 Change (TP change) 100 20 Sheng Siong BUY Unchanged 1.20 (na) 90 10 Dairy Farm BUY Unchanged 9.77 (+) CP All BUY Unchanged 95.00 (na) 80 0 Berli Jucker BUY Unchanged 70.00 (na) 70 -10 Matahari Prima Putra HOLD Unchanged 380 (-) 60 -20 MY TH ID PH (RHS) Puregold NA Under review 44.30 (prev) 50 -30 Robinson’s Retail HOLD Downgrade 87.00 (-) Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Source: DBS Bank Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Source: Bloomberg Finance L.P., DBS Bank Page 3 Page 3 Industry Focus ASEAN Grocery Retail Current grocery market fundamentals in ASEAN Our coverage universe trades at an average of 25x PE Market Market fundamentals (x) 40.0 Singapore Online threat remains small Thailand Strong demand and margin growth 35.0 +2sd: 34.7x Indonesia Weak demand environment, players strategising Philippines Demand to be affected by TRAIN tax laws 30.0 +1sd: 30.4x Malaysia Higher opex and mixed top line observed Avg: 26x Source: DBS Bank 25.0 -1sd: 21.7x Highest growth format remains Supermarkets in Singapore 20.0 and Convenience Stores in developing ASEAN. While -2sd: 17.3x 15.0 prospects of ASEAN Grocery Retail have the highest long-term Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 growth rates pegged to convenience stores across ASEAN ex- Singapore (According to Euromonitor 5-year growth rates), Source: DBS Bank the current demand and operating environment especially in Malaysia and Indonesia convenience stores suggest weak Top picks are DFI, SSG, CPALL and BJC. We favour stock picks fundamentals in the form of near-term macro, competitive from Singapore and Thailand, with Singapore largely based and operational challenges. on valuation and Thailand on growth. We like Dairy Farm (DFI SP, BUY) for its attractive valuation. Core PE ex RRHI and Top-down stock-pick strategy ranks Singapore and Thailand Yonghui is valued at 18x. Sheng Siong (SSG SP, BUY) provides stocks the highest stable earnings, yield and resilience to volatility in earnings and stock price/market movement due to its low beta of Top-down selection approach ensures circumvention of stocks <0.5x. We see earnings growth from margin expansion at exposed to weak macro environment. We are adopting a top- Berli Jucker (BJC TB, BUY) driven by its glass business, while down stock-picking strategy for this sector at the current BigC should see positive SSSG and outlet growth. CP ALL moment as this ensures that our preferred picks are operating (CPALL TB, BUY) will continue to see store expansion of at in a stronger macro environment. We look to avoid stocks least 700 a year and better margins will come from more exposed to weak domestic macro environment as well.
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