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They issue buy calls on counters like Robinson, Metro, Sincere Watch

WITH the macro-economy performing strongly, analysts are now saying that the outlook is just as rosy for the retail sector.

>From department stores like the Robinsons group and Metro to luxury watch businesses like Sincere Watch, a quick check found that ‘buy’ recommendations have also been issued recently on a range of retail counters, which have seen their prices rising in the past year, some by more than 60 per cent.

Government estimates released on Oct 10 showed that the economy had grown a surprisingly strong 7.1 per cent year-on-year in the third quarter, and looks set to carry the momentum through to the end of the year.

The services sector alone expanded 6.6 per cent in Q3. While no exact details for the retail component were available beyond that it too had recorded faster growth, analysts are confident that sentiments in retail will remain buoyant.

Singapore Retailers Association executive director Lau Chuen Wei, for one, feels that consumer confidence is up.

With unemployment rates at a low and economic growth at a high, ‘consumer confidence seems to be on the rise, and this is indeed good news for the retail industry, the performance of which is very closely linked to consumer confidence,’ she observed.

Mavis Seow, director of retail services at CB Richard Ellis, notes that rent levels have been rising and brands are still expanding, with retailers still looking for space.

‘Across the board in various sectors, from health and fitness to fashion, really, it’s looking quite positive at the moment,’ she told BT.

With more buyers snapping up more homes and residential prices moving up, there could even be a trickle-down effect from the property sector to the home furnishings trade, she reckoned.

The opening three weekends ago of Vivocity, Singapore’s biggest mall yet, has injected further buzz into the retail scene, adding some 300 stores, with 1.04 million sq ft of shopping space, offering new products and new fashion labels.

But there is a word of caution from UOB Kay Hian research head Yang Sy Jian, who pointed out that higher sales volume does not mean higher profits per item.

‘The discounts during sales periods mean lower margins, which would not be reflected in the sales volume figures,’ he said.

Ms Lau said: ‘There are many factors that contribute to economic performance measurements. These might include interest rates, rental rates,’ she said.

‘Whilst these contribute to the positive performance of the financial and property sectors, they have a reverse effect on the retail industry for whom these represent escalating costs. If sales revenue does not escalate in tandem, then margins will be at stake.’

Still, a number of analysts are favouring retailers such as Robinson and FJ Benjamin which are launching new stores and labels in Vivocity. DBS Vickers issued a buy call for Robinson on Aug 24, anticipating revenue boost from the group’s three new stores at Vivocity, including a 13,000 sq ft Marks & Spencer.

Fashion retailer FJ Benjamin, which has brought in new labels Gap and Banana Republic, received a ‘buy’ recommendation from Kim Eng on Sept 28.

Both counters have seen their stock price climb in the past year, with FJ Benjamin rising 65 per cent to close at 54.5 cents yesterday.

On the luxury end, Sincere Watch received a recent ‘buy’ call from Kim Eng, which said in an Oct 12 report that ‘the luxury market in Singapore remains upbeat with rising consumer interest in fine jewellery and watches’.

Indeed, Philip Securities analyst Brandon Ng noted the growing ranks of millionaires in Singapore. According to a Merrill Lynch-Capgemini survey, the number of this group expanded 13.4 per cent last year to 55,000.

Source : Business Times - 26 Oct 2006