RHB: Overweight consumer sector; contrarian buy call on BEST WORLD

Excerpts from RHB Research report

Maintain OVERWEIGHT on sector, Top Picks are Delfi, Sheng Siong and Thai Beverage.
Delfi chocs3.19 Delfi is focusing more on growing premium and higher-value products. Photo: CompanyYTD, the consumer sector has underperformed the STI. We believe consumer confidence in Singapore has peaked, but think there are still pockets of opportunities in companies with strong attributes and a bottom-up growth story.

We continue to favour players with market exposure to the region that are likely to benefit from stronger GDP growth and higher domestic consumption.

Company Name	Rating	TP (SGD)	% Upside	P/E Dec-19F	P/B Dec-19F	Div Yld (%) Dec-19F
Best World	BUY	2.95	46.0	11.4	5.0	4.4
Dairy Farm^	BUY	8.25	1.4	22.4	6.5	2.8
Delfi	BUY	1.68	29.2	21.6	2.7	2.5
Food Empire	BUY	0.69	23.2	10.6	1.1	1.4
MindChamps	BUY	0.87	32.8	19.4	2.4	1.6
Sheng Siong	BUY	1.25	20.2	19.8	5.0	3.6
Thai Beverage*	BUY	0.92	11.5	20.9	3.6	2.4
BreadTalk	Neutral	0.81	(6.9)	34.2	3.6	2.3
Genting Singapore	Neutral	1.08	11.3	13.8	1.4	4.1
Japan Foods**	Neutral	0.45	3.4	14.5	2.0	4.6
Kimly Ltd**	Neutral	0.24	0.0	12.0	3.0	4.2
Note: * data refers to FY19 (Sep) ** data refers to FY20 (Mar) ^data is in USD Source: Company data, RHB

• Delfi is one of our top picks amongst the Singapore-listed consumer names. It is the leading chocolate confectionery player in Indonesia in terms of market share.

“Our investment thesis for Delfi is further strengthened by the stabilising of IDR vs USD this year.”

-- Juliana Cai

Prior to 2018, Delfi downsized its product portfolio to focus more on growing the premium and higher-value product range.

With a steady 5% growth in the country’s GDP, we think Delfi is well-positioned to leverage on the rising middle class and higher purchasing power in Indonesia.

In addition, with the general election looming, we expect consumer sentiment to remain buoyant. We forecast 19% growth in FY19F earnings, driven by strong revenue growth and improved operating leverage as fixed costs stabilised.

A Best World franchisee outlet in Zhengzhou. Photo: Wechat
• Best World – best when entered at the right price. We still have a contrarian BUY call on the stock with a TP of SGD2.95.

Best World’s share price declined recently due to concerns on the sustainability of its China growth and the lack of brand visibility from online searches.

“While the lack of visibility in Best World’s direct-selling and franchise model suggests that investors should be cautious, we believe that its current share price, at below SGD2.10, is very compelling and could offer substantial upside to investors to justify the risk.”

-- Juliana Cai

However, we note that management was still expecting 50% YoY growth in end-consumer demand for the China market during its 4Q18 results briefing.

As such, we believe growth momentum should still be strong in the near term. Currently, we forecast net earnings to grow at 52% for FY19.

Full report here.

RHB: Overweight consumer sector; contrarian buy call on BEST WORLD

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