In this article, we focus on consumption plays trading at an attractive valuation standpoint. According to RHB, the three stocks we are about to discussed are currently undervalued and presents a good investment opportunity.
Investors Takeaway: 3 Consumption Plays Trading At Attractive Discount By RHB
- Jumbo Group
Anyone who claims to be a Singaporean should be familiar with this Singapore brand: Jumbo Group (Jumbo). Jumbo is an F&B company that operates 20 restaurants and has six franchisee-operated restaurants. The group recently opened two new branches in Ion Orchard and Jewel Changi Airport and has plans to expand into more Jumbo Seafood outlet openings in Shanghai and Beijing. RHB notes that these store expansions should help contribute to both revenue and net profit.
Following six quarters of consecutive decline, Jumbo has started to turn around with 1Q19 net profit growing by 15.7 percent year-on-year. Based on consensus’ estimates, the stock is trading at 20 times forward-FY19 price-to-earnings per share (P/E). This appears to be undemanding considering its historical average P/E of 26 times. Jumbo’s share buyback at $0.36-$0.42 indicates that Jumbo should be worth at least this much.
If you are looking for a proxy to Indonesia’s rising middle class, you may want to look at Delfi. The chocolate confectioner markets and distributes its own brand of products in Indonesia, the Philippines, Malaysia, and Singapore.
With a strong GDP growth in the Indonesian market, RHB expects Delfi sales to expand on rising income and higher demand for premium products which Delfi’s premiumisation strategy will capitalise on.
So far, Delfi’s share price has already outperformed the STI year-to-date. However, RHB believes that there is still more room for further upside based on its prospects for FY19. Despite having outperformed the STI year-to-date, it is still trading at a discount to its peer Mayora Indah.
- Sheng Siong Group
Over the last five years, Sheng Siong Group (Sheng Siong) has consistently gained market share and raised its gross margin through increased bulk handling and central procurement. With further expansion of its distribution centre this year, RHB foresees continued gross margin enhancement in the near term for Sheng Siong. Sales from 10 new stores opened in 2018 should also ramp up and improve Sheng Siong’s operating margin in FY19F-FY20F.
Sheng Siong has always been a market darling among investors. With the share price slide in March, it has made Sheng Siong even more attractive for bargain hunters especially with its good dividend yield. While Sheng Siong has a 70 percent dividend payout policy, its strong cash flow and cash stash should allow the management to raise its dividend payout policy through special dividends.