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Home Growth Companies 2 Stocks That Are Poised to Do Well Despite the Lockdowns

2 Stocks That Are Poised to Do Well Despite the Lockdowns

COVID-19 has changed how we live and commute.

Unprecedented lockdowns across the world have severely restricted people’s freedom of movement.

These drastic measures have been implemented to stop the spread of the coronavirus.

Though painful for the economy, these tough measures are necessary to save lives and ensure the economy can function normally again once the pandemic has passed.

Numerous businesses have suffered as footfall in malls and along streets has all but dried up.

Only essential services have been allowed to operate in most countries, such as selected food and beverage outlets, essential manufacturing and grocery retailing.

While there is no doubt that many companies will encounter cash flow issues, there are a small number of businesses that are thriving despite the lockdowns.

Here are two such companies, and both are providing essential services.

Dairy Farm International Holdings Limited (SGX: D01)

Dairy Farm International, or DFI, operates over 10,000 outlets in Asia, including grocery retail, convenience stores, health and beauty, home furnishings and restaurants.

The group employs around 230,000 people and chalked up sales exceeding US$27 billion last year.

DFI’s grocery retail division saw strong like-for-like sales growth as people stocked up on essentials due to the lockdowns.

Government measures restricting movement and dining in have pushed more people to cook at home and build reserves for a rainy day.

These activities have benefitted the grocery retail division.

On the flip side, however, the health and beauty and convenience store businesses suffered due to movement restrictions and physical distancing requirements.

Investors should note, however, that grocery retail forms the bulk of group revenue, at 46.4% for the fiscal year 2019.

Grocery retail also benefited from a Transformation Plan announced in end-2018, with operating profit for 2019 almost tripling to US$63.1 million.

With Malaysian recently extending its Movement Control Order till 9 June, and Singapore’s circuit breaker set to end on 1 June, DFI should continue to see growth in its grocery retailing division.

Sheng Siong Group Ltd (SGX: OV8)

Sheng Siong Group operates one of the largest supermarket chains in Singapore.

As of 31 March 2020, the group operated 61 outlets in Singapore, located mainly in the heartland areas, spanning 553,000 square feet.

Sheng Siong offers a wide assortment of products, and offers over 1,200 products under its 18 house brands, ranging from food products to essentials such as toiletries and essential household items.

Because of Singapore’s circuit-breaker measures to tackle the pandemic, the group saw elevated demand for its products during the first quarter of 2020.

Revenue for the first quarter of 2020 soared 30.7% year on year, while net profit jumped by 50% year on year to S$29 million.

The group continued to improve on its gross profit margin, raising it to 27% from 26.1% in the first quarter of 2019.

Of the 30.7% growth in revenue, 19.7% was contributed by increased comparable same-store sales growth, while 9% came from new stores opened.

Though this spike will taper off once the lockdowns are eased, Sheng Siong may continue to post growth from the opening of new stores.

After the first quarter, the group secured two new HDB stores that were tendered in January 2020.

Sheng Siong also won a tender for a 4,610 square foot shop in the Potong Pasir Community Club.

The retail chain is expected to end the year with a total of 64 stores spanning 575,000 square feet.

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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.

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