Congratulations dear reader! We are finally at a point in time where we can finally be maskless “outdoors”. Though we are still far from normality, this is certainly one step closer to pre-covid life! With the easing of restrictions, one of the most anticipated moves is the increase in dining capacity from 5pax to 10pax. This is something that has excited many with the stock market being no exception.
On the same day of PM Lee’s address, Alvin reported the following spikes in these F&B stocks.
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- Katrina (Bali Thai, Streats, So Pho etc) +26%
- Tung Lok +20%
- Soup Restaurant +19%
- Kimly +5%
- ABR (Swensen’s) +4%
- RE&S (Kuriya, Ichiban) +3%
- Jumbo +2%
All of them closing green on the same day and with momentum consolidating at present!
Here are my pick of 5 F&B stocks that should be on your watchlist as we head to a new normal!
OLD CHANG KEE LTD. (SGX:5ML)
Don’t let its name fool you as Old Chang Kee is far from old. In fact, if you looked into their FY reports, you’ll actually find some pretty amazing results. For starters, their stock has increased by almost 5x since their IPO back in 2008 and even as of today, the stock has held its worth through inflation/covid. (The same cannot be said for many other SGX “blue-chip” stocks).
What I like about the model of Old Chang Kee is that their outlets are mostly takeaway. This effectively eliminates 2 of the highest operating costs in F&B:
- Rent (they require smaller premises) and,
- Labour (they do not require wait staff/servers).
In addition to this, I consider the demand for their product offerings to be relatively resilient in the sense that you’ll be “happy” to consume their products day or night and that consumer demand would not vary in accordance to the state of the economy. Some may even go to the extent of labelling their brand as demand inelastic. This is of utmost importance in any business.
If we look at their FY2021 revenue of $75.32m, we would notice that it decreased by less than 15% as compared to FY 2020, $88.04m. This makes them easily one of the top performers amongst all F&B Stocks in Singapore.
RE&S HOLDINGS LIMITED (SGX:1G1)
When we think of Japanese food brands in Singapore, either Sakae Sushi or Sushi Tei may come to mind. If we take that up a notch, we have the brands from RE&S which include familiar names such as Ichiban Boshi (there is always a queue when I’m there, anyone else experience the same?), Kuriya Dining and their latest line of “GO” series restaurants which include Shabu-go, Sushi-go and Yakiniku-go.
It is common knowledge that RE&S was the mothership company (based on the serviettes placed on the table) but I had no idea that this company was listed. Upon digging deeper into their financials, I was pretty shocked to find they actually performed better in FY2021 as compared to FY2020. This is an interesting company to look at as when we pick stocks, we always want to pick the winners! We always see the news going on about how F&B is in the red blah blah but here we have an actual winner who actually came out of Covid better than before.
Briefly, their revenue increased YOY from $110.65m in 2020 to $123.95m 2021. The biggest change would come from their net income where they generated -$5.24m in FY 2020 but managed to then the whole situation around in FY 2021 by generating $9.48m. That is a pretty impressive turnaround in 1 year considering that they’ve been operating throughout the entire 5pax SMM.
In my opinion, there is a chance that they did well in 2021 due to the restrictions on travel. If management went with the consumer approach of “Since you can’t go to Japan, we’ll bring Japan to you”, then given how consumers couldn’t really go anywhere, they just had to settle on the products & services from RE&S. With borders reopening quickly, I believe that 2022 will be a true test to their capabilities. In any case, this is one company that has definitely caught my eye.
Did I mention that this company gave an astonishing dividend pay out of 8.5% in 2021? That’s pretty amazing for an F&B company operating in the midst of a pandemic!
TUNG LOK RESTAURANTS 2000 LTD (SGX:540)
TungLok is not a name that’s new to us. In fact, just recently they were in the news with the whole Duckland Saga. Most of us here would think that TungLok is all about Chinese Cuisine and for the most part they are but in recent years, they have been diversifying their F&B portfolio to suit a wider range of customers.
One of their more recent concepts which I find to have fantastic synergy with the core TungLok Brands is Dancing Crab. With so much emphasis on the freshness of seafood in Chinese cuisine, its almost a perfect match for TungLok to put their wealth of experience in that area into a modern, seafood-centric, mass-market concept like Dancing Crab.
FY 2021 was a challenging year for TungLok as they experienced a 24% YOY decline in Revenue as compared to FY 2020. This comes at no surprise given the dining restrictions brought about by Covid both in Singapore as well as in the region. (Tung Lok has exposure/operations in Indonesia, Japan & Vietnam).
With measures easing up in Singapore as well as the opening up of our international borders, I do think that TungLok may see better days ahead as their restaurants start to fill up with busloads of tourists yearning for their popular “Deep-fried Prawns with Wasabi-mayo Sauce”.
SOUP RESTAURANT GROUP LIMITED (SGX:5KI)
Soup Restaurant is probably not the first brand that comes to mind when it comes to Chinese food as they are a little past their peak (explained further later). It is likely that this brand would resonate more with middle-aged/senior diners as they have been in Singapore for 30 years!
In terms of fundamentals, the company has been consistent over the years generating positive net income even during the pandemic. Valuations do seem a little high with the company trading at a P/E (TTM) of 36.
What I find to be interesting about this counter are its technicals. Due to its low volume, I’d recommend the weekly chart to be used as reference. Once we plug that in, it is clear that this stock is consolidating at $0.10. At the very least, we are seeing buyers come in at this level which may suggest an opportunity for those interested parties.
It would also appear that the stock peaked in 2013-15 and that also happens to be where its dividend payout was at its highest (Aprox. 11.39%). Since then, dividend payouts never reached that level again which may suggest that 2013-2015 was indeed the “golden” years for the company.
ABR HOLDINGS LIMITED (SGX:533)
Here we have the brand owner of a restaurant that has probably seen many of us grow up. Famous for both food and desserts, Swensen’s is one brand that I daresay ALL of us have been to at least once. Surprisingly enough, it is interesting to see the brand continuously refresh itself over time with the results being a restaurant that is packed to the brim during peak hours. Definitely the masterpiece of good management there. However, does a busy business always equate to a profitable one? Let’s check out how their fundamentals have performed of late.
In terms of valuations, like Soup restaurant, ABR trades at a PE of 37 which I find to be oddly high. With revenue holding up well throughout 2020 and 2021 (at approx. $74-85m), I’ld say that the company had held on to its market share fairly well during covid. On the flip side, we saw net income get cut by almost 50% from $5.98 million in 2020 to a mere $2.49 million in 2021.
I like to think of Swenson’s as a restaurant that has fairly resilient demand too (just like OCK). This is because Swenson’s is indeed priced very reasonably such that every average person would be able to dine there and not feel like they are spending an arm and a leg on a meal. Furthermore, with their delicious desserts, it does give diners another reason to “celebrate” at their premises in which case diners who are in a celebratory mood are indeed less sensitive to prices given that celebrations are not an everyday occasion.
Resilient throughout the Pandemic and more
Most F&B stocks didn’t do too well during the pandemic as they saw their revenues decline. Despite this, F&B stocks continue to form a rather defensive backbone to any portfolio. This is because despite the state of the economy, people still need to eat and therefore these businesses will never have $0 in revenue. Even during the lockdown period, F&B establishments were still allowed to operate given they adopt a takeaway model.
Therefore, despite what we see in the news about rising cost, tightening of labor policies etc. F&B brands will always find a way through it.
A note on technicals, for all of these counters, I had to switch to the weekly chart to get a better understanding of the price action. This is actually quite sad given how low the volume is for many of these stocks with some days even having no action at all. Most of these companies are profitable and are indeed running businesses that actually generate income for shareholders. (Same can’t be said for many other stocks). It is a pity that market participants have neglected this sector.
