With 2018 ending around the corner, we highlight three consumer stocks that UOBKH thinks will help investors’ build a solid foundation for returns in 2019.
Investors Takeaway: Finding Refuge In Consumer Stocks
For investors with lower risk tolerance, the consumer sector is a possible consideration. There are multiple value plays in the consumer sector including Thai Beverage (ThaiBev), Japfa and Genting Singapore.
Although ThaiBev’s 3Q18 result was disappointing, there are still showing signs of recovery. ThiaiBev’s profit was down 16.2 percent year-on-year as a slower-than-expected volume recovery in Thailand continued to drag down sales. However, the consumer confidence index in Thailand is climbing back to 83.2, which is a five-year high. Consumption will likely spread wider in the country towards rural communities with rising agriculture exports and slated elections in February 2019.
ThaiBev is also undergoing an organisational restructuring to take advantage of synergies and value creation across ThaiBev units. UOBKH foresees the group to be able to look forward to cost savings from newly integrated business units such as Sabeco and Myanmar Spirits. UOBKH remains positive on the group’s ability to turn around underperforming business segments, as well as a renewed management focus into the beer business segment.
According to UOBKH, ThaiBev is currently trading at a discount to global alcohol peers, at forward-FY19 price-to-earnings of roughly 14 times versus average 23 times. This suggests that there is potential upside in its current valuation. At this share price, there is still room for investors to take advantage of ThaiBev’s undervaluation.
BUY, TP $0.84; Current share price $0.58
- Genting Singapore
Genting Singapore’s rolling chip volume (RCV) delivered a fifth consecutive quarter of positive growth in 3Q18. It recorded a 13 percent year-on-year growth this quarter alone. This came in largely in line with what UOBKH had forecasted. Moving forward, Genting Singapore will continue its relaxed credit policy in spurring gaming volume growth. Its management has indicated that it will remain diligent in monitoring macro risks, particularly the potential impact from trade war as it could affect Genting’s VIP players’ arrival and their ability in debt repayments.
Right now, Genting Singapore is trading at an attractive approximately 6 times EV/EBITDA in 2019, which is under -2 standard deviation to its 7-year mean EV/EBITDA. Based on its EV/EBITDA valuation, Genting Singapore is currently one of the cheapest casinos in the region after its share price correction. It has an attractive valuation that is even more compelling than its holding company, Genting Berhad’s 6.6 times forward-FY19 EV/EBITDA.
Its valuation could trend up over time on the development of its Japan Integrated Resort (IR) bidding. Underpinned by its stable Singapore operations, Genting Singapore’s valuation will trend up over time as its bidding for Japan’s IR concession builds up to the RFP stage.
BUY, TP $1.38; Current share price $0.985
Japfa is a deeply undervalued mid-cap stock that is suitable for investors with higher risk tolerance. After a 29 percent decline year-to-date, Japfa has now entered into the undervalued category. Moreover, Japfa offers an arbitrage opportunity for investors.
Japfa owns a 52 percent stake in Japfa Comfeed, which accounts for about 90 percent of Japfa’s market valuation. This means that the market is undervaluing the other segments of its business. According to UOBKH’s estimates, the rest of Japfa implies a valuation of just two times for its other businesses. Moreover, UOBKH sees Japfa as an excellent proxy to rising protein consumption from the growing middle class. UOBKH foresees Japfa’s earnings to be on a strong turnaround from 2018 onwards.
BUY, TP $0.98; Current share price $0.740