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 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.

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.