OREANDA-NEWS. For the last trading week of July as many as three of the 10 biggest volume jumpers were Consumer Staples stocks – Sheng Siong Group, Del Monte Pacific, and Dairy Farm International Holdings. As noted in the Market Update yesterday for the purpose of the volume variance analysis, qualifying stocks must have been listed for at least three months and maintain a three month historical daily turnover of at least S$0.5 million.

Together Sheng Siong Group, Del Monte Pacific, and Dairy Farm International Holdings hold much relevance to everyday trips to the supermarket. In Singapore , Dairy Farm operates under well-known brands such as Giant and Cold Storage, while Sheng Siong Group is one of Singapore’s largest retailers, principally engaged in operating the Sheng Siong Groceries Chain. Both supermarkets stock the food and beverage products of Del Monte Pacific.

As of July, the average Enterprise Value (EV) to Earnings Before Interest, Tax, Debt and Amortisation (EBITDA) for these three stocks was 13.7x, ranging from 11.7x for Del Monte Pacific to 15.1x for Sheng Siong Group. This was up from an average of 12.5x a year ago for the three stocks, with similar gains across the three stocks. The EV to EBITDA ratio looks at the firm as a whole operating asset, stripping out the effects of capital structure and excess cash, while EBITDA looks at the underlying business – or in simpler terms provides a  measure of the value placed on a company by the market. As this ratio is capital structure neutral, it helps to provide a normalized ratio for comparing companies with varying debt levels.

The three stocks have averaged a 6.5% total return in the first seven months of 2016, with performances ranging from a 6.5% decline for Del Monte Pacific to a 19.6% gain for Sheng Siong Group. Average daily turnover for the three stocks over the past three months has been S$2.3 million for Dairy Farm International Holdings, S$1.7 million for Sheng Siong Group and S$0.6 million for Del Monte Pacific.

Sector Performance in YTD

Over the first seven months of 2016, the Consumer Staples generated a market capitalisation weighted total return of 23.2%.  While most sectors gained, the two sectors that declined were Banks and Real Estate Management & Development. Together the Banks and Real Estate Management & Development Sectors make up more than a quarter of the Index weight of the Straits Times Index (STI), thus have weighed the 1.4% total return of the STI in the year to date.

Singapore’s two Consumer Sectors - Consumer Staples and Consumer Discretionary – maintain an approximate 15% weight in the STI which is similar to sector weights in the MSCI AC Asia Ex Japan Index. These sector definitions are based on Global Industry Classification Standard (GICS®) which is also used to classify sectors on SGX StockFacts. The two Consumer sectors, Consumer Discretionary and Consumer Staples, are made up of businesses that supply goods and services to consumers. In the month of July, the combined turnover of the stocks of both Consumers Sectors was S$153 million.

Together the Consumer Staples and Consumer Discretionary Sectors averaged a market capitalisation weighted total return of 14.3% over the first seven months of 2016 and a 3.3% total return in July. During July the MSCI AC Asia Consumer Staples Index generated a decline of 1.2% while the MSCI AC Asia Consumer Discretionary Index generated a gain of 8.7%, in SGD terms.   

Consumer Discretionary businesses include both manufacturers and services. The manufacturing side covers cars, household and leisure items in addition to textiles and clothing, while the services side includes hotels, restaurants, media and consumer retailing.  Consumer Staples are more focused on food, beverage and other non-durable products and services. This can include plantations to manufacturers and packagers to food retailers. 

Across Asia Pacific, there are typically three times as many Consumer Discretionary Stocks as there are Consumer Staples stocks. Consumer Staples Stocks tend to trade at higher premiums to their earnings and book values. MSCI AC Asia Consumer Staples Index trades at Price-to-Earnings and Price-to-book ratio which is approximately twice that of the MSCI AC Asia Index and the MSCI AC Asia Consumer Discretionary Index.

Consumer Sector Leaders

The 10 largest capitalised active stocks of Singapore’s Consumer Sectors averaged a 2.5% total return in July, which took their average total return to 8.4% in the year thus far. These 10 stocks include Thai Beverage PCL, Wilmar International, Jardine Cycle & Carriage, Dairy Farm International Holdings, Genting Singapore PLC, Singapore Press Holdings, Olam International, Golden Agri-Resources, Genting Hong Kong and Fraser and Neave.

Two secondary listings that rank amongst the 10 highest  capitalised Consumer stocks are Alibaba Pictures Group and Shangri-La Asia, however as these stocks are not as actively traded as Dairy Farm International Holdings they are not included in this analysis.