Sheng Siong, Kimly among DBS' stock picks as consumers grapple with inflation

DBS announced its stock picks along with a survey showing Singaporeans prioritised groceries, utilities and dining-out. PHOTOS: ST FILE, LIANHE ZAOBAO

SINGAPORE - As consumers adjust their spending priorities in response to rising inflation, investors should focus on stocks in companies that provide consumer staples like Sheng Siong and Kimly, said DBS Bank.

Pent-up demand for travel may help Singapore Airlines (SIA), while the relaxation of Covid-19 curbs may boost select real estate investment trusts (Reits) and hospitality stocks, the bank added.

DBS announced its stock picks along with a consumer survey that showed Singaporeans are taking a cautious approach on spending, and would prioritise groceries, utilities and dining out.

Hence, the bank would prefer supermarket chain operator Sheng Siong, given its positioning in the mass market and heartland exposure in the Republic.

Among the food service plays, DBS also picked coffee shop and foodcourt operator Kimly.

"Grocery companies could enjoy a second wind in their sails with this heightened inflationary environment," DBS analysts Andy Sim and Geraldine Wong said in a June 21 report.

"The availability of house brands, large store network and a wide array of products provide pricing and bargaining power, as well as allowing costs to be passed on," they added.

Even though DBS' survey showed that Singaporeans will opt to cut frequency of overseas travel, the bank said SIA remains one of its favoured reopening stock pick at this juncture given the big rebound in incoming travellers.

"We believe that a sharp rebound in passenger volumes, elevated air fares and cargo yields will drive robust top line growth. Additionally, the airline's jet fuel hedging and cost-saving initiatives should keep a lid on inflationary pressures," it said.

The bank said that, while respondents of its consumer survey highlighted that travel is one of the discretionary items that could be cut, it sees pent-up demand coupled with a line-up of corporate events and Formula One returning in September this year driving performance in the next two quarters.

That pent-up demand would also help hospitality-focused Ascott Residence Trust, CDL Hospitality Trusts and Far East Hospitality Trust, it said.

Among Reits, DBS would prefer Frasers Centrepoint Trust, CapitaLand Integrated Commercial Trust and Lendlease Global Commercial.

"Reits with exposure to necessity retail spending will continue to benefit on the back of lower price elasticity of demand and higher turnover rents."

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