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4 Stocks This Week

4 Stocks This Week (Retail) [10 August 2018] Challenger; Duty Free Int’l; Metro; Hour Glass

How are retail stocks listed on SGX matching up to the exponential growth of e-commerce?

 

On Thursday, Amazon’s share price hit a record high of US$1,899.96. While Amazon shares closed lower on Friday, the news raised expectations that Amazon could be the next trillion-dollar company. Amazon’s market cap currently stands at US$909.9 billion.

Amazon’s recent performance has been supported by strong Q2 earnings that beat estimates. Earnings-per-share came in at US$5.07 per share, more than double analysts’ expectations of US$2.49 per share.

Amazon has also been a key beneficiary from strong consumer confidence amongst US consumers, which improved in July. While the Conference Board’s Consumer Index is currently lower than it was in February, where it reached a 17-year high, US retail sales have continue to pose strong growth, with June retail sales achieving 6.6% year-on-year growth.

Despite the exponential growth of Amazon, which is expected to reach 10% of all US retail sales by 2020, US retailers have managed to defend their turf, causing numerous retail shares like Macy’s Inc and Tiffany & Co to surge over 30% in the last three months. The XRT Retail ETF, an exchange-traded-fund which measures the performance of retail stocks, has reached levels not seen since 2015.

On Wednesday, Synagie, a homegrown ecommerce company, was traded on the SGX Catalist for the first time. Synagie is expected to benefit from Southeast Asia’s ecommerce boom, as the industry is projected to quadruple to reach US$200 billion annually by 2025. Singapore’s ecommerce market is projected to reach $10 billion annually by 2020.

In February, the government announced that it would introduce an ecommerce tax on digital services in 2020. This move was aimed at levelling the playing field between ecommerce sellers and traditional retailers. However, confronted with high rents and weak sales, traditional retailers continue to face an uphill battle.

Excluding motor vehicles, retail sales grew by just 0.2% YOY in June 2018. Considering that the Great Singapore Sale (GSS) starts in June, this reflected that the annual tradition was less effective at boosting sales compared to previous years.

On this week’s edition of 4 Stocks This Week, we will look at four of the largest retailing stocks listed on the SGX.

Read Also: 15 Trustworthy E-Commerce Retailers That Offer Free Shipping to Singapore

Challenger Technologies Limited (SGX: 573)

Challenger is a consumer electronic company which operates a chain of information technology (IT) retail outlets across Singapore.

In July, Challenger announced that it had secured new leases at JCube and Ion Orchard, which will begin operations in Q3 and Q4 respectively.  Challenger said that securing of these leases is part of the company’s goal to focus on its retail operations by expanding to suitable locations in Singapore.

For June, retail sales of computers and telecommunications equipment fell 8.5% YOY. Against this backdrop, Challenger reported last week that its revenue for Q2 2018 fell 3% YOY, or $2.6 million, to $76.2 million. This was attributed to lower online sales and lower revenue for the electronic signage business.

However, on the back of lower operating expenses and higher gross profit margins, Challenger reported that its net profit for Q2 2018 grew by 3% YOY to $4 million.

With a market cap of $169.2 million, Challenger’s share price closed at $0.49 this week.

Read Also: Cost Guide: University Students’ Laptop Buying Guide 2018

Duty Free International Limited (SGX: 5SO)

Duty Free International (DFI) is Malaysia’s largest local duty-free retailing group. DFI runs over 40 duty-paid and duty-free retailed outlets scattered across West Malaysia, including airports, seaports, downtown areas, border towns and popular tourist attractions. As of 9 July, Atlan Holdings Bhd owns a 74.58% stake in DFI.

In July, DFI announced that it would invest US$2.8 million ($3.8 million) for a 70% stake in Brand Connect Holding Pte Ltd. DFI said the move was to develop its alcohol distribution business and expand its market operations to include the duty-paid market across South East Asia.

Also in July, DFI announced its financial results for the quarter ended 31 May 2018. DFI’s revenue fell 28.9% YOY to RM165.1 million ($55.5 million), mostly due to a supply shortage amongst popular products in the global market. This caused DFI’s net profit attributable to shareholders to plummet by 39.9% YOY to RM9 million ($3 million).

DFI has conducted numerous buyback transactions over the past few months. In June, acting on its buyback mandate of 29 June 2017, DFI purchased over 4.3 million shares. Between July and August, DFI purchased another 3.9 million shares. DFI’s stock traded between $0.195 and $0.215 between June and August.

Looking forward, DFI says it expects its operating environment to remain challenging, with the volatile US Dollar- Malaysia Ringgit exchange rate, growing inflation and weak consumer sentiment.

With a market cap of $274.3 million, DFI’s share price closed at $0.205 this week.

Read Also: How Much Do You Save When You Buy Alcohol From Duty Free?

Metro Holdings Limited (SGX: M01)

Metro Holdings is a property and retail group headquartered in Singapore.

In October 2016, Metro was the target of Quarz Capital Management, an activist investor which urged Metro to return excess cash to investors. Metro fended off Quarz’s challenge, saying in a public letter that it had plans to expand its Property division, including numerous capital-intensive projects.

In April, Metro announced that it would partner with Trans Corpora Group to sell two residential projects in Jakarta, Indonesia. Metro said that it would fund 90% of the investment, or approximately 1.20 trillion rupiah ($114.1 million). A report by Colliers International projects that increased consumer confidence and optimism is likely to spur the high-rise residential market in Indonesia, which means Metro could benefit from this investment.

In May, Metro acquired a 35% stake in Shanghai Yi Zhou Property Management Co Ltd, a joint venture company which owns 90% of Shanghai Plaza, a mixed-use building in Shanghai worth 2.9 billion Chinese yuan ($581.7 million).

For the quarter ended 31 March 2018, Metro announced that its revenue grew by 1.8% YOY, or $0.6 million, to $34.3 million. However, this was insufficient to keep Metro out of the red, which recorded a loss of $1.9 million for the quarter.

Looking forward, Metro says that pressure on margins amidst a highly competitive trading environment will likely to be a drag on profitability.

With a market cap of $910.8 million, Metro’s share price closed at $1.10 this week.

The Hour Glass Limited (SGX: AGS)

The Hour Glass (THG) is a luxury watch retail group headquartered in Singapore, with a presence in 10 cities across the Asia Pacific region.  It is the official retailer of leading watch brands like Rolex, Patek Philippe and Cartier.

THG released its financial results for the quarter ended 30 June 2018, where it reported that its revenue grew 9.9% YOY, or $16.4 million, to $180.7 million. THG’s net profit jumped by a whopping 104.8% YOY, or $7.3 million, to $14.3 million.

THG says that the luxury watch market’s turnaround since 2017, driven by a strong global economy and revived Chinese demand, is likely to be good news for the company. However, the entrance of new players like Acquired Time, which leases luxury watches, could create greater competition for THG as the sharing economy goes upscale.

Moving forward, THG says that as a third-party retailer, its ability to forge indelible partnerships with the right brands will be instrumental for its long-term success.

On 28 May, THG’s Executive Chairman, Dr Henry Tay personally acquired 9,981,700 shares at $0.66 per share, which cost nearly $6.6 million. This transaction increases his stake in THG from 61.8% to 63.1%.

With a market cap of $461.8 million, THG’s share price closed at $0.655 this week.

Read Also: Why Are Rolex Watches So Expensive?

4 Stocks This Week is not a recommendation from us to buy or sell any of these stocks. For investors who are keen to find out more, you should continue researching about them before making your investment decisions.


 
 

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