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MBKE: 2 Value Buys For Consumer Stocks
Aspire, Hot Picks | 24 April 2015
By: Lim Si Jie
Articles (169) Profile

Maybank Kim Eng (MBKE) pointed out two consumer stocks that are worthwhile to keep a look out for, which will capture the long term growth in the consumer services market and garner you a 10 percent return.

Super Group: Risks vs Opportunities  

Super’s core business continues to generate cash and maintaining a dividend policy, attaining at least 50 percent core profits. It aims to have $80-100 million cash on hand to take advantage of market conditions and opportunities for Mergers and Acquisitions (M&A).

Challenges Ahead

Although 2015 should feature more growth opportunities, challenges for Super Group remains. Super faces weak consumer sentiments in Thailand and the Malaysian market will be a challenge to navigate, noting that a recent Government Service Tax (GST) policy was passed.

Essentially, the Malaysian government had decided to start collecting GST from consumers and Super has officially started increasing prices accordingly. Although Super might benefit from increased consumer spending prior to the policy, MBKE cautioned that “Super will still have to monitor market conditions and respond accordingly.”

Amid weak Thai consumer sentiment, initial response to its new products such as brown sugar coffee had been positive. Although Nestle is big in Thailand, it does not offer such products, giving Super a head start.

No Plans For New Target Segment

Super had sold off its canned-drinks division because of the general culture across SEA countries to be more inclined towards consuming hot beverages. Ready-To-Drink (RTD) products are typically consumed chilled in countries such as Japan. As such, sachets still work best for SEA countries.

Buy On Weakness

Super’s stock has risen 50 percent in the past three months. Some analysts have downgraded it on valuation grounds but Maybank believes that Super’s “recovery is still intact” and expects accumulation from investors on weakness.

Verdict: BUY, TP SGD1.60

OSIM International: Expanding Products To Complement Its Core Business

OSIM is expecting growth to be around ten percent as it cites possible “soft” conditions. Growth could be stronger if reception to its new products from the market is favourable. However, MBKE had already expected this and priced it into its previous valuation projections.

In the next five to ten years, OSIM’s massage chairs segment is still expected to bring in the most revenue. Its management believes that massage-chair sales can still grow four to five times in the next five to ten years.

Building Profitability With TWG Brand

The Wellbeing Group (TWG) currently promotes its products through premium channels such as house-owned high-end stores, first and business-class aircraft seats and five-star hotels. TWG will add a Middle-Eastern airline partner in 2H15 to expand its distribution channel. Currently, TWG tea is already available on Singapore Airline and All Nippon Airways flights.

Although only Singapore operations are profitable, management believes that current investments in North Asia will see benefits once consumers buy the idea of TWG tea complementing its core massage chair business.

Verdict: BUY, TP SGD2.55

Si Jie is no stranger to investing having started his journey at a young age. He is heavily influenced by acclaimed investors such as Benjamin Graham, Peter Lynch, and John Rothchild.

Please click here for more information about this author.


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