As Singapore’s stock market continues to rally, an often overlooked sector is getting a boost.
The city-state’s listed restaurants have outperformed regional and global peers as dining out drives shares higher.
These companies might be steady defensive businesses with consistent margins, Maybank Kim Eng analyst Gregory Yap said.
The Straits Times Index has surged 7.9 percent this year to become the second-best performing developed market in the world after record tourist spending last year and strong fourth-quarter GDP.
An equal-weighted index of Singaporean companies that derive at least 70 percent of their revenue from restaurants has climbed a similar 7.5 percent.
Singapore’s economy would only expand between 1 and 3 percent this year, policymakers said after fourth-quarter growth came in at an annualized 12.3 percent, which was the fastest pace in more than five years.
Chili crab restaurant Jumbo Group Ltd is one of the sector’s biggest gainers as shares are up 9.2 percent year-to-date even after a 63 percent rally in the past 12 months.
“Franchises will be our new growth path,” group chief executive officer Ang Kiam Meng said in an interview in Singapore.
Negotiations in Thailand are “in the final stage” and it will look to other nearby locations such as Taiwan, Indonesia, Vietnam, Hong Kong and Macau in the next two to three years.
In China, it intends to open at least one new outlet in Shanghai, Beijing and Shenzhen between this year and 2019.
Jumbo has the best potential among Singapore’s listed restaurants to expand into bigger consumer markets due to its “well-established name” and its product offering that is suitable for the Chinese market, said Alan Richardson, investment manager at Samsung Asset Management that holds a stake in the company
Other restaurants, such as Japan Foods Holdings Ltd, the company that runs Ajisen Ramen, and Chinese restaurant chain, Tung Lok Restaurants 2000 Ltd are expanding at a slower pace amid a slowdown in the inflow of foreign workers since 2010.
“My strategy is to place importance on profit,” Japan Foods chief executive officer Kenichi Takahashi said in an interview in Singapore.
A few years ago, the company focused on increasing numbers, but now it has 51 stores and it “won’t open more aggressively.”
“Aside from Jumbo, other Singapore restaurant companies are more fast-food concepts which have little competitive advantage,” Richardson said.
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