Retail stocks show promise
Five biggest retail stocks by market capitalisation on SGX average a 10.9% year-to-date total return
Retail is not dead, at least for the mega companies listed on the Singapore Exchange (SGX).
The five biggest retail stocks by market capitalisation on SGX - Jardine Cycle and Carriage, Dairy Farm International Holdings, Olam International, Sheng Siong Group and Metro Holdings - have averaged a 10.9 per cent year-to-date total returns.
This takes their average 12-month returns to 22.3 per cent, while maintaining an average return on equity (ROE) of 16.3 per cent, according to a SGX report last month.
Nonetheless, investors should also note that the performance of these five companies, which are classified under the GICS Consumer Staples and Discretionary Sector, has been mixed so far this year.
Dairy Farm International Holdings, behind well-known brands such as Cold Storage, 7-Eleven, Guardian and Ikea, saw the highest year-to-date returns at 20.5 per cent.
Its profit attributable to shareholders of the company was US$469 million (S$660 million) last year, compared with US$424 million in financial year 2015, noted SGX's report.
Olam, which is in the business of cocoa, coffee, cashew, rice and cotton, was the poorest performer.
The agriculture commodities giant saw negative 3.3 per cent year-to-date returns.
The challenges faced by these companies can be quite different, as can be seen by the performance of three of the companies - Jardine, Dairy Farm and Sheng Siong - which recently released their first quarter earning reports.
Jardine Cycle and Carriage, probably best known for its automotive business in South-east Asia, is the biggest of the five retail stocks.
In Singapore, it retails brands such as Mercedes-Benz, Mitsubishi, Kia and Citroen.
According to its first-quarter earnings report released on April 28, their underlying earnings per share was up by 44 per cent.
Its growth was driven by the booming Indonesian economy as they have a 50.1 per cent stake in Indonesian firm Astra.
During the first quarter, Astra, which partners with Toyota, Daihatsu, Peugeot and is the main dealer for BMW, launched one new model and two revamped models.
A total of 161,000 units were sold, resulting in an increase in market share from 48 per cent to 57 per cent, noted their first quarter report.
But performances in countries such as Malaysia and Indonesia were not as positive because of increased competition.
The company's chairman Ben Keswick is optimistic about the year ahead, but expects challenges.
He said: "The outlook for the rest of the year is positive with Astra expected to benefit from the continued growth in the Indonesian economy, supported by higher commodity prices, although for its automotive activities there is a risk of increasing price competition."
Dairy Farm, which had the most momentum in its share price among the five stocks, saw lower sales in their food division in South-east Asia.
Its health and beauty, as well as home furnishings divisions, however, produced higher sales and operating profits in the first quarter last year.
In an interim management statement last week, the company said: "A challenging Chinese New Year and the absence of the extra leap-year trading day seen in 2016 led to sales for the group's subsidiaries in the first quarter being slightly below the prior year.
"There were, however, improved operating margins in certain businesses that offset the soft sales and led to a modest increase in operating profits."
Home-grown brand Sheng Siong Group, which reported their first quarter results late last month, saw a 4.1 per cent year-on-year growth in revenue, said an OCBC Bank report.
"Amid keen competition and two eventual store closures, areas that would likely continue to help Sheng Siong Group include steady margins, new stores that were opened last year (includes Yishun Junction 9), the larger Block 506 Tampines store, as well as any potential renovation for existing stores.
"In addition, opportunities for opening new stores still exist," said OCBC analyst Jodie Foo in a May 3 report.
To make more informed decisions, investors can make use of SGX's market data, which allows them to track the stock's trading activity, optimise their buy/sell orders and establish price support/resistance.
It will be available for free until June 30 through the respective broker e-platforms. (See report at right.)
SGX also notes that these large retail stocks offer diversity and choices to investors.
"These stocks also face distinct economic drivers - from evolving consumer preferences to e-commerce technologies, to seasonal impacts on agribusiness.
"This means there is no one stock shaped by all the factors presently driving the regional retail business."
About market depth
Market depth (MD), also known as Level 2 market data, displays the number of buy and sell orders of each price level of a listed security (for example, stocks or exchange-traded funds), up to 20 levels of pending orders on each buy and sell side.
In simple terms, it shows the different price levels which buyers are willing to buy and sellers willing to sell at any given time, with buyers represented on the left and sellers on the right in the order book.
The data is in real time and the orders shown change constantly during pre-open session to market close.
MD information is available on all trading platforms upon subscription with your broker.
For more info, go to www.sgxacademy.com/marketdepth