SINGAPORE (Dec 4): Phillip Capital is remaining “overweight” on Singapore’s consumer sector on expectations of a continued rebound in the city state’s economic conditions as well as improving consumer sentiment.
In a Monday report, analyst Soh Lin Sin refutes the idea that Amazon will grab all market share from existing players, due to the nature of local consumers and the advantages which local players continue to have over Amazon’s recently-launched Prime Now service.
See: Amazon announces launch of Prime Now in Singapore
Soh also believes Singapore's fragmented e-commerce market and the price sensitivity of consumers imply a lack of customer loyalty to a single platform – which gives both brick-and-motor operators and other online retailers the opportunity to intensify competition in response.
The research house hence has “buy” ratings on supermarket stocks Sheng Siong and Dairy Farm with target prices of $1.13 and US$9.89 ($13.34), respectively, on the notion that these major supermarkets “dwarf Amazon Prime Now” in terms of variety and range of offerings.
“[Sheng Siong and Dairy Farm] have own Fresh distribution warehouse in Singapore, allowing them to ramp up fresh offerings as well as to leverage economies of scale. Fresh products are less vulnerable to Amazon’s threat. Improving operating efficiencies will support their profitability and thus more resilient and sustainable. In addition, they are also expanding their stores network, bringing their presence closer to consumers,” Soh elaborates.
The analyst also highlights the sustainable cost structure of supermarket companies, which enables them to maintain their pricing competitiveness by maintaining margins and keeping costs low.
In the F&B segment, Phillip Capital has “buy” recommendations on Old Chang Kee and Thai Beverage (ThaiBev) at target prices of 98 cents and $1.18 respectively, as well as an “accumulate” rating on Fraser & Neave (F&N) with a target price of $2.83.
Soh sees potential for these F&B manufacturers to collaborate with online intermediaries to complement their existing distribution network, such as listing their products on the platforms of e-retailers including Lazada, Redmart, and Amazon Prime.
“Although Amazon Prime is relatively cheaper compared to peers, consumers may not be able to find their preferred type and brand of products in the preferred amount in one single online store,” says Soh.
“Physical supermarkets will have greater depth and breadth of products as compared to one particular online marketplace – stocking a full line of fresh and processed meats, dairy, fruits, vegetables, bakery products, etc., each with wide variety of brands,” she concludes.
As at 12.46am, shares in Sheng Siong, Dairy Farm, Old Chang Kee, ThaiBev and F&N are trading at 93 cents, US$8.10, 76 cents, 96 cents and $2.58 respectively.
