SINGAPORE (Mar 20): Malaysian vegetable supplier Oh Kian Huat delivers bak choy, spinach and kai lan from Cameron Highlands to Singapore at least three times a week.
He was initially worried that the two-week lockdown order, if imposed on food supplies as well, will lower his takings by some $2,000.
Nevertheless, on the morning of March 19, his shipment made it across safely and reached his Singapore buyer by 8am. There were more checks at the customs than usual. The shipment, he tells The Edge Singapore, was given a detailed scan instead of a cursory visual check. Still, the delivery was made relatively fuss-free, says Oh. However, Oh heard some Malaysian farmers have raised prices by 10%, while retail prices in Singapore have increased by 20% more than usual in some instances, he adds.
According to William Chen, professor in food science and technology at Nanyang Technological University, the prospects of a cut in vegetable supplies could have unintended benefits. “The government has been emphasising the resilience of our local farming community so this will be a good time and opportunity to showcase our local farmers and their capabilities. To each farmer, it is an opportunity to double the production levels and yields and possibly enjoy higher revenues,” says Chen.
When the lockdown order was first announced in the evening of March 16, many Singaporeans again thronged supermarkets that very evening and the following day. It was only later in the day on March 17 that Prime Minister Lee Hsien Loong put out a Facebook posting conveying assurances from his counterpart PM Muhyiddin Yassin that food supply would not be cut.
Supermarket chain Sheng Siong, with its network located within the housing estate heartlands, is seen to be an obvious beneficiary, as people stock up on essentials. Most of the brokerages covering this stock have “buy” or “add” calls. DBS Group Research has a target price of $1.41 while CGS-CIMB Research and RHB Research have target prices of $1.37 and $1.42 respectively.
UOB Kay Hian, on the other hand, has a “hold” rating on Sheng Siong with a target price of $1.29, as the company is already trading at a P/E of 22.5 times for 2020E which is in line with its average P/E since 2012. In an email to The Edge Singapore, analyst Adrian Loh says, “The company has store-expansion plans in place for 2020 and 2021, and its EPS growth for both years is driven by the full effect of its 10 store openings in 2018 as well as five new stores in 2019.”
Loh says the impact of the first round of panic buying and hoarding will be negligible.
“We believe that earnings per share impact will be negligible, if any. While any stockpiling now will benefit the bottom line, it also means that unless they are perishables that have been stocked up, consumers do not need to buy non-perishable items in the next, say, three to six months, thus negating the short term positive impact,” he adds.
Analysts are not too upbeat on another major consumer stock Dairy Farm International though. The Hong Kong-based, Singapore-listed company runs multiple supermarket brands across the region but is exposed to a higher proportion of discretionary spending because of the F&B outlets it also operates.
CGS-CIMB thus has a “reduce” call and target price of US$5.40 ($7.84) while RHB Research has a target price of US$5.05. Juliana Cai of RHB also sees Dairy Farm facing pressure from its Maxim restaurant chain, and also its health and beauty products.
