Region's retail sector expected to remain resilient

Young, growing population, robust GDP growth, emerging middle class cited: Study

Combined retail sales in Malaysia (above), Singapore, Indonesia and Thailand could reach US$1 trillion (S$1.3 trillion) in 2018.
Combined retail sales in Malaysia (above), Singapore, Indonesia and Thailand could reach US$1 trillion (S$1.3 trillion) in 2018. PHOTO: AGENCE FRANCE-PRESSE

The region's retail sector will continue to show "remarkable resilience" despite sluggish prospects in many developed markets and a slowing Chinese economy, according to a report yesterday.

The report noted that the combined retail sales in retail powerhouses Singapore, Indonesia, Malaysia and Thailand are expected to grow from US$650 billion (S$874 billion) last year to US$1 trillion in 2018, at a rate of 15.5 per cent annually.

The four countries together made up 76 per cent of the US$2.45 trillion Asean economy last year.

The study, compiled for the Singapore Exchange (SGX) by research firm Frost and Sullivan, noted that much of the growth in the sector is driven by the Asean market's strong fundamentals - a young, fast-growing population, emerging middle-class consumers and robust gross domestic product growth.

Indonesia and Malaysia show the biggest potential among the major Asean economies in leading the retail boom, said the report.

The retail sector in Indonesia is forecast to rise 19.3 per cent annually to reach US$639 billion in 2018, while Malaysia is poised to grow 12.1 per cent each year to US$151 billion.

Thailand is projected to increase 8.9 per cent annually to US$155 billion over the same period, while Singapore, a mature retail market with a high number of global retailers, is expected to expand 6.4 per cent a year to US$56 billion in 2018.

The report noted that slowing demand from population ageing, rising business costs, the possibility of a dip in tourist arrivals and falling consumer confidence remain crucial challenges for the sector in Singapore.

But it added that the country continues to enjoy a high GDP per capita, which is likely to further increase and provide a strong base for the retail market, helped by low unemployment and a fully urbanised population.

Online retail is another key growth area, although this will expand at a pace that is slowest in the region.

The study also provided strategic and financial analyses on SGX-listed firms across various segments in the sector.

It noted that the lifestyle and homeware, and fashion and apparel segments, for instance, are well-supported by the high GDP per capita while benefiting from the growth of e-commerce.

Firms with a high price-to-earnings ratio as at Dec 31 last year - typically a sign of a growth stock - include Parkson Retail and Zhongmin Baihui Retail Group.

The automotive segment similarly benefits from the high per capita income here.

In addition, the ageing fleet of cars, which is likely to lower the certificate of entitlement cost, and the larger loan-to-value availability, will likely augment demand in the sector.

Companies, such as Tye Soon and Stamford Tyres, stood out with a high price-to-earnings ratio.

"Despite headwinds facing the retail sector recently, we recognised the need to keep investors informed of the sector's longer-term growth outlook in Asean, which continues to be backed by strong demographic and macroeconomic fundamentals," said SGX head of equity capital market (sectors) Simon Lim.

"The emergence of e-commerce also presents an exciting growth opportunity for the sector."

A total of 162 consumer companies with a combined market capitalisation of more than $140 billion are listed on SGX, accounting for the bulk of firms listed here. Of the 162, 43 firms are in the retail sector, with a market cap of $30 billion.

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A version of this article appeared in the print edition of The Straits Times on July 05, 2016, with the headline Region's retail sector expected to remain resilient. Subscribe