Weighed down by the US-China trade uncertainties, global growth is expected to slow down. Though a 90-day tariff truce was agreed in December, no concrete details of any potential trade deal have surfaced. In this article, we highlight two sectors DBS recommends investors that are looking to stay defensive.
Investors Takeaway: 2 Sectors To Stay Defensive With In 2019 By DBS
Over the last few months, Singapore’s retail sales have seen a shift from consumer staples into more discretionary categories. This coincides with a survey by SingStat that F&B and retail businesses are expecting better prospects in the next six months.
DBS notes that the consumer goods sector is attractively priced with the sector price-to-earnings below its 5-year historical average. With the headwinds faced by cyclical sectors, consumer goods sector’s defensive traits will be much sought after by the market. Thus, to ride out the uncertainties in 2019, DBS recommends stocks with more resilient earnings, strong cashflow and/or attractive valuation.
For the consumer goods sector, DBS favours consumer stocks with either a good defensive profile, attractive valuation, or both.
Sheng Siong Group
Sheng Siong Group (Sheng Siong) is one of DBS’ top picks within the consumer goods sector. 2019 will see more growth for Sheng Siong as it continues to expand new stores, improve efficiencies and margins from better sales mix. The warehouse expansion in 2019 will also help Sheng Siong better manage its cost. For investors, Sheng Siong also comes with a decent dividend yield of 3-3.5 percent plus potential for higher payout.
BUY, TP $1.24; Current share price $1.11
After an earnings decline in FY18, DBS foresees Koufu Group’s (Koufu) earnings to recover in 2019. Revenue growth for Koufu is expected to be led by new food courts in Singapore and Macau, which is partially offset by higher operating costs and depreciation. Investors can expect long-term key drivers like an integrated facility for economies of scale and overseas growth in Macau to take concrete shape in 2019.
BUY, TP $0.80; Current share price $0.61
The outlook for the REIT sector continues to be promising in 2019 as healthy demand and easing supply pressure leads to a cyclical upturn in the sector. Supply pressure is expected to ease in the industrial, retail, office and hospitality sub-sectors to lend support to rising rent. While Singapore’s economic growth is forecasted to grow only by 3 percent (vs 3.4 percent in 2018), it should still translate to healthy demand and rising rent.
Improving Dynamics In The REIT Sector
With tight asset yields in Singapore, the market will continue to see REITs push for expansion into overseas market. DBS believes that industrial REITs will be in a more pressing situation to expand overseas due to the expiring lease on their land tenure.
With over $8 billion worth of acquisitions made in 2018, DBS forecasts S-REITs to deliver steady DPU growth in 2019. Among the sub-sectors, retail and commercial sub-sectors will deliver the fastest growth, largely driven by CapitaMall Trust’s recent acquisitions and re-opening of Funan mall and Mapletree Commercial Trust’s recent asset enhancement initiatives (AEIs).
Given the tightening real estate market conditions, rising spot rent and increasing rental reversion also bode well for faster DPU growth in 2019. That said, however, DBS recommends investors to avoid commercial and hospitality REITs owing to heightened risk surrounding demand for office space and hotel rooms arising from the ongoing trade war and risk of near-recession conditions in the US.