SINGAPORE – Food and beverage (F&B) businesses like restaurants will be hard hit by the coronavirus outbreak but supermarkets stand to gain as people snap up essential items, noted a report on Wednesday (March 25).
The gloomy outlook has prompted DBS Bank Group Research analysts Alfie Yeo and Andy Sim to slash earnings forecasts for F&B service businesses by up to 58 per cent.
They cite reduced demand from fewer tourist arrivals and the exposure to markets such as China and Macau that have seen a slowdown in activities or even the shutdown of businesses.
The analysts also singled out bakery chain Breadtalk and seafood restaurant group Jumbo due to their high exposure to China.
Jumbo Group stock was downgraded to “hold” from “buy” and the target price lowered from 38 cents to 18 cents. The Chinese market accounted for almost 20 per cent of Jumbo’s sales in the last financial year.
Jumbo recorded $154 million in revenue in 2019 but DBS analysts expect this to fall to just $110 million this year due to travel restrictions, social distancing and a slowdown in China.
They noted that January’s retail sales figures showed that takings at food services surged 9.1 per cent over the same month in 2019, led by fast food outlets, restaurants and food caterers thriving during Chinese New Year.
But this will soon change with the escalation of the virus outbreak and the need for social distancing: “We believe that companies which operate a mainly restaurant format or are exposed to tourist demand will be the worst affected.
“While the market is switching to dining at home, we see those who prefer to dine out will considerably go for cheaper and quick dining options or may even choose takeaway and delivery.”
The DBS analysts added that there will be a shift in spending patterns to more essential items like medical goods and supermarket groceries.
“We are positive on the grocery retail segment as the Covid-19 outbreak has infused panic within local communities. Panic buying across regional markets, including staying away from public and crowded areas, continues to underpin supermarket sales,” they said.
Supermarket turnover here also picked up during the Sars outbreak in 2003, a trend that continues this time with hoarding by some customers and regional travel restrictions that keep people grounded.
The shift in consumer demand has led the analysts to raise the rating of Dairy Farm group to “buy” with a target price of US$4.70. Its closed at US$3.96 on Tuesday.
Dairy Farm brands include Cold Storage, Giant, Market Place and Jason’s Deli.
The company recorded US$11.2 billion in revenue last year, with analysts expecting the figure to hit US$ 11.6 billion this year, as locked down consumers eat at home.
The analysts estimate Government support will amount to $1 to $2 million. A series of support packages for companies were announced in the Budget with a second stimulus package to come on Thursday (March 26).
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