Singapore is moving into a new phase of the pandemic.
Last Friday, the country announced the easing of a slew of COVID-19 measures to reopen the economy.
Groups of 10 vaccinated people will now be allowed to dine in at food and beverage outlets, up from five previously.
For hawker centres and coffee shops, the new group size also applies if they set up vaccinated-differentiated safe management measures.
In addition, the current restriction on the sale and consumption of alcohol after 10:30 p.m. will also be lifted.
After two years of dining restrictions, the loosening of the measures was a welcome change..
Restaurants in Singapore have been among the hardest hit sectors.
Social distancing measures and group size limitations have depressed sales for many restaurant and café operators for more than two years.
With the latest moves, investors can now turn their attention to restaurant-related stocks to potentially add to their watchlist.
A surge in share prices
A couple of restaurant stocks saw their share prices surging on the announcement of the easing.
Take Katrina Group Ltd (SGX: 1A0) for instance.
The group owns popular brands such as Bali Thai (Indonesian-Thai fusion cuisine), So Pho (Vietnamese cuisine), and Streats (Hong Kong cuisine).
Katrina’s share price surged by 25.7% to S$0.088 after the news broke.
Soup Restaurant Group (SGX: 5KI), famous for its samsui chicken, saw its share price jump by more than 18% to S$0.096.
And Tung Lok Restaurants (2000) Ltd (SGX: 540), which serves premium Chinese cuisine, saw its stock jump by 20.5% to S$0.147.
These restaurant stocks have been hobbling along over the last few years as COVID restrictions hurt their business.
Katrina reported a marginal net profit of S$158,000 for fiscal 2021 (FY2021), but if not for government grants of S$3.8 million, the restaurant operator would have reported a net loss.
Soup Restaurant saw its revenue dip by 4.7% year on year for FY2021 while net profit declined by 10.7% year on year to S$774,000.
And Tung Lok reported a net loss of S$3.8 million for the six months ended 30 September 2021.
Laggards in the sector
While the above restaurant stocks have done well, there are a handful of food and beverage companies that have not seen a similar share price surge.
The easing of restrictions should also benefit their business as larger groups can now dine in.
Japanese restaurant specialist RE&S Holdings (SGX: 1G1) saw its share price inch up 3.3% to S$0.189.
The owner of the Ichiban Boshi and Ichiban Sushi brands saw net profit plunge by 54.3% year on year for its fiscal 2022 first half (1H2022) ended 31 December 2021.
The owner of the popular Swensens chain of western restaurants and curry puff brand Tip Top, ABR Holdings (SGX: 533), saw its share price rise by just 4.4%.
ABR reported a sharp 58.4% year on year plunge in net profit to S$2.5 million for FY2021.
Chilli crab specialist Jumbo Group (SGX: 42R) saw its share price inch up just 1.7%, even as the restaurant chain reported a net loss of S$11.2 million for its fiscal year ended 30 September 2021.
Investors may view these names as laggards as their share prices did not jump in response to the relaxed dining rules.
As malls get more crowded and more people venture out to dine, it’s almost certain that RE&S, ABR and Jumbo will benefit, thus boosting both their top and bottom lines.
More easing to come
Singapore may ease these rules further should the number of cases continue to fall in the coming weeks.
The nation is taking a calibrated approach to ensure that it does not open up too quickly.
Doing so may trigger a resurgence in the number of cases, potentially overwhelming the healthcare sector and putting a strain on hospitals’ ICU capacity.
Assuming more easing does occur in the coming months, these restaurant stocks are well-positioned to do even better.
Get Smart: An eventual return to normalcy
With luck, Singapore should see itself transitioning to the endemic phase smoothly.
This reopening means that we can co-exist with the virus even as we ramp up vaccination boosters and regular testing.
There is the opportunity for the country to open up further should cases fall dramatically.
If you’re an investor who is watching out for recovery stocks, the restaurant sector should be ripe with suitable candidates.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.
