With many economies slowly opening up, consumer sentiment has been on the rise.
Investors can see this as a virtuous cycle.
As economies reopen and more people are allowed to shop, the resultant demand generates revenue and cash flow for businesses.
And as businesses thrive again, they can also hire more staff, thus boosting spending ability and strengthening consumers’ propensity to spend.
The signs are there.
China, one of the first countries to reopen to a new normal post-pandemic, just logged GDP growth of 18.3% year on year for its first quarter, the fastest in three decades.
Singapore also reported its first GDP expansion after three quarters of contraction, delivering0.2% year on year growth in the first quarter.
Investors who are looking for businesses that latch on rising consumer spending should turn their attention to these three companies.
Delfi Limited (SGX: P34)
Delfi, which used to be known as Petra Foods, manufactures and distributes branded consumer products such as chocolates and confectionery to over 17 countries including Indonesia, Singapore and Malaysia.
The group has a portfolio of brands that are household names in Indonesia, such as SilverQueen and Ceres.
For 2020, revenue from Indonesia fell 17.6% year on year to US$255.2 million, largely due to social restrictions and movement controls imposed due to the pandemic.
As a result, profit after tax fell by 38.1% year on year to US$17.5 million.
Despite the weaker profits, Delfi managed to generate an increased free cash flow of US$38.7 million, higher than 2019’s US$21.1 million.
As a vote of confidence in the business, the total dividend for 2020 was kept constant at US$0.0235. At the last traded share price of S$0.86, Delfi’s trailing 12-month dividend yield stood at 3.6%.
Looking ahead, the group has a three-pronged strategy.
The company plans to engage its younger customers through digital communications.
Besides, Delfi will also rejuvenate its brands by launching new flavours and product categories to cater to consumers’ focus on health and wellness.
A third strategy will be to strengthen distribution in the minimarts and newer retail formats and to rely on data analytics to derive insights into consumer spending patterns and preferences.
The Hour Glass Limited (SGX: AGS)
The Hour Glass is a luxury watch retailer that sells a wide variety of luxury watch brands such as Rolex, Patek Philippe, Audemars Piguet and Cartier.
The group has a network of 45 boutiques located across the Asia-Pacific region.
The pandemic had caused a historical decline in the luxury watch sector for 2020.
A halt in production and lack of market activity led to an unprecedented 21.8% year on year decline in the value of Swiss watch exports.
For The Hour Glass, its fiscal 2021 first-half earnings ended 30 September 2020 reflected this decline in demand, with revenue falling 24% year on year and net profit dipping by 15% year on year.
Despite the weaker earnings, the group generated a healthy free cash flow of S$51.2 million, and its balance sheet is flush with cash of S$207 million with debt of around S$70.7 million.
And for the first time, The Hour Glass declared an interim dividend of S$0.02.
Looking ahead, exports to Singapore fell by 17.5% year on year in February 2021, but both China and Hong Kong have seen a sharp rebound, with China more than doubling to CHF 191.4 million.
As the wave of recovery hits Southeast Asia, watch exports should also ride on this recovery and benefit the group.
Jumbo Group (SGX: 42R)
If you’ve ever fancied a tantalising dinner with chilli crabs, then Jumbo is probably the place to go to.
The group is a leading food and beverage (F&B) operator with six distinctive brands that serve anything from seafood and Bak Kut Teh to Hainanese chicken rice.
Jumbo was naturally badly impacted by the circuit breaker measures in Singapore last year and subsequent movement restrictions.
Revenue for 2020 plunged by 36.5% year on year while the group recorded a net loss of S$9.9 million.
The group’s balance sheet, however, remained robust with around S$27.7 million in cash with just S$2.1 million of debt.
Jumbo is not slowing down its expansion, though.
In December last year, it opened its 13th overseas Jumbo Seafood restaurant in Fuzhou, China.
The opening marks its second outlet in Fuzhou and seventh Jumbo Seafood restaurant in China.
Back home, Jumbo is also expanding its portfolio of F&B brands.
It acquired Kok Kee Wanton Noodle, a well-loved wanton noodle stall in Jalan Besar, for S$2.1 million in November last year.
And in January this year, Jumbo entered into a joint venture agreement to operate an outlet selling Teochew fishball and minced meat noodles.
With China’s economy booming and Singapore slowly easing its COVID-19 measures, Jumbo should experience healthy business volume moving forward.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.
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