• Moving into 2H20, we continue to favour safe haven stock Sheng Siong (SGX:OV8) amid market concerns on weakening global economy, rising US and China trade tensions and COVID-19 resurgence.
• Earnings wise, we believe outlook still remains optimistic as grocery sales are likely to remain elevated even after the Circuit Breaker due to prevailing work from home measures.
• Reiterate BUY with new Target Price of SGD1.72 from SGD1.63, 13% upside and 3% yield.

Expect 2Q to See Stronger Sales Growth

• Although we have begun to see the panic-buying pattern taper off from March to May, Circuit Breaker measures have shifted the bulk of on-premise food demand to grocery retail. Consumers also turn to supermarkets as a substitute following the closure of more non-essential shops from 22 Apr. Even as Singapore move into Phase One of post-Circuit Breaker on 2 Jun, dining out continues to be prohibited. Those who can, are still expected to work from home while students from non-graduating cohorts still have some forms of home-based learning. As such, grocery demand is likely to remain elevated from April to June. Thus, we believe 2Q20 could see stronger sales y-o-y growth compared to 1Q20.

Growth to Moderate in 3Q But Likely to Stay Positive

• Ministers have cited Phase One of post-Circuit Breaker to likely be at least four weeks. Barring a major resurgence of COVID-19 cases in June, we expect Singapore to move into Phase Two at the end of June or some time in 3Q20. The gradual resumption of on-premise dining and social activities in Phase Two would shift some demand away from grocery retail. However, it would not mean returning to pre-COVID days.
• Employers are likely to be encouraged to adopt work-from-home measures while some forms of social distancing measures should still prevail. We believe 3Q20 will still see decent y-o-y sales growth amid more time spend at home compared to pre-COVID days but growth would likely have peaked in 2Q20.

As Safe as Houses

• Being a beneficiary of the current exceptional environment, Sheng Siong remains our preferred pick in the consumer sector. We believe the market would also continue to favour this safe haven stock given the uncertain negative lingering impact of COVID-19 on other businesses.
• We raise our FY20F earnings by 6% on the back of higher sales forecast and government grants. This, together with declining risk free rate in Singapore, raises our DCF-derived Target Price to SGD1.72, implying 25x FY20F P/E.

Source: RHB Invest Research - 29 May 2020