RHB Research Securities has upgraded the consumer sector to "overweight" from its previous "neutral" stance.
This is as “consumer companies with exposure to the re-opening of domestic activities, such as those in retail and food & beverage services, should see some earnings recovery in 2021F, from a low base in 2020,” analyst Juliana Cai explains in a Dec 8 note.
She adds that a further push would come from locals’ pent-up demand, increase in savings from the lack of travel opportunities as well as being accustomed to the social distancing measures.
To cope with this, many firms have restructured their operating expenses through higher gross turnover rentals, lower base rental rates and hiring more casual labour, observes Cai.
However she remains cautious on tourism-related names such as Genting Singapore and Jumbo Group.
This is as the recovery in tourism numbers is likely to be slow in next 12 months given uncertainties on the mass distribution of the Covid-19 vaccine.
Meanwhile, Cai notes that businesses that have benefitted from the lockdowns and stay home trend should see earnings moderate in 2021, as consumers transit into a post-Covid world.
However, she is mindful that the pandemic and the resultant measures have triggered some “lasting trends” such as working-from-home, healthier lifestyles and a greater emphasis on home entertainment.
“This could result in structural changes to consumption patterns,” she mulls, adding that businesses that did well during the circuit breaker measures may see elevated demand from pre-Covid days despite a tapering in sales numbers post lockdown.
Sub-sectors that fall into this category include e-commerce, home furnishing, sports & recreational retail, online entertainment and grocery retail.
Thai Beverage (Thaibev) is her top pick for the sector in 2021.
“We like Thaibev’s earning defensiveness – derived from the spirit segment – coupled with potential recovery play from its exposure to the on-premise consumption through its beer, non-alcohol beverages and restaurant segments,” explains Cai.
She believes the company will benefit from the resumption of social and economic activities, as sales of beer and non-alcoholic beverages and products for the restaurant segments should pick up when then.
Cai has posted a “buy” call on the counter at a target price of 82 cents.
She also has “buy” calls on Sheng Siong and Dairy Farm at a target price of $1.87 and US$4.47 ($5.98) respectively.
Touching on her liking for Sheng Siong, Cai notes that the grocery chain’s sales “may remain buoyed, if not exceed levels recorded prior to the pandemic” should the work-from-home trend and travel restrictions remain in place till late 2021.
As for Dairy Farm, she says that its current valuation “presents a good opportunity for long-term accumulation – especially given the positive news on vaccine development”.
The challenge she foresees is a continued wave of Covid-19 infections in Hong Kong which may affect the recovery of the counter’s health and beauty and restaurant segments.
