DBS sees boom for supermarkets, gloom for F&B

DBS analysts singled out bakery chain BreadTalk and seafood restaurant group Jumbo, owing to their high exposure to China.
DBS analysts singled out bakery chain BreadTalk and seafood restaurant group Jumbo, owing to their high exposure to China.ST PHOTO: KELVIN CHNG

Food and beverage (F&B) businesses like restaurants will be hit hard by the coronavirus outbreak, but supermarkets stand to gain as people snap up essential items, noted a report yesterday.

The gloomy outlook has prompted DBS Bank Group Research analysts Alfie Yeo and Andy Sim to slash earnings forecasts for F&B service businesses by up to 58 per cent.

They cited reduced demand because of fewer tourist arrivals and the exposure to markets such as China and Macau that have seen a slowdown in activities.

The analysts also singled out bakery chain BreadTalk and seafood restaurant group Jumbo, owing to their high exposure to China.

Jumbo Group's stock was downgraded to "hold" from "buy", and the target price lowered from 38 cents to 18 cents. The Chinese market accounted for almost 20 per cent of Jumbo's sales in the last financial year.

Jumbo recorded $154 million in revenue last year, but the DBS analysts expect this to fall to $110 million this year because of travel restrictions, social distancing and a slowdown in China.

They noted that January's retail sales figures showed that takings at food service businesses surged 9.1 per cent year on year, led by fast-food outlets, restaurants and food caterers thriving during Chinese New Year.

But this will soon change with the escalation of the outbreak and the need for social distancing: "We believe that companies which operate a mainly restaurant format or are exposed to tourist demand will be the worst affected.

"While the market is switching to dining at home, we see those who prefer to dine out will considerably go for cheaper and quick dining options or may even choose takeaway and delivery."

The analysts added that there will be a shift in spending patterns to more essential items like medical goods and supermarket groceries.

"We are positive on the grocery retail segment as the Covid-19 outbreak has infused panic within local communities. Panic buying across regional markets, including staying away from public and crowded areas, continues to underpin supermarket sales," they said.

Supermarket turnover here picked up during the severe acute respiratory syndrome outbreak in 2003, a trend also seen now, with hoarding by some customers and... travel restrictions that keep people grounded.

Supermarket turnover here picked up during the severe acute respiratory syndrome outbreak in 2003, a trend also seen now, with hoarding by some customers and regional travel restrictions that keep people grounded.

The shift in consumer demand has led the analysts to raise the rating of the Dairy Farm Group to "buy" with a target price of US$4.70. It closed at US$4.07 yesterday. Dairy Farm brands include Cold Storage, Giant, Market Place and Jason's Deli.

The company recorded US$11.2 billion (S$16.2 billion) in revenue last year. Analysts expect the figure to hit US$11.6 billion this year.

A series of support packages for companies was announced in the Budget, with a second stimulus package to come today.

Companies are also implementing measures to cope with the outbreak.

A BreadTalk spokesman said: "Most of our brands are already on-board delivery services. For example, BreadTalk is currently the biggest bakery brand on GrabFood, and we hope this extended service will (help) customers to buy bread as they comply with stay-home measures.

"We are also looking at expanding this on other delivery platforms and will be partnering Toast Box, as part of a bread and coffee bundle within the delivery menu."

A version of this article appeared in the print edition of The Straits Times on March 26, 2020, with the headline 'DBS sees boom for supermarkets, gloom for F&B'. Print Edition | Subscribe