Yeo Hiap Seng Limited (SGX:Y03), a SGD$718.45M small-cap, operates in the consumer staples sector, which is facing a change in consumer taste and pressure for organic and sustainable foods, spurred by more health-conscious consumers. Consumer staple analysts are forecasting for the entire industry, a relatively muted growth of 7.24% in the upcoming year . Below, I will examine the sector growth prospects, as well as evaluate whether Yeo Hiap Seng is lagging or leading in the industry. See our latest analysis for Yeo Hiap Seng
What’s the catalyst for Yeo Hiap Seng’s sector growth?
Disruption from consumers is becoming more prominent than that of industry competitors. Consumers are predominantly leaning towards more health-conscious alternatives such as whole and raw ingredients. Additionally, new companies with unique business models have emerged in the wake of this healthier food trend. Over the past year, the industry saw growth of over 50%, beating the Singapore market growth of 8.07%. Yeo Hiap Seng leads the pack with its impressive earnings growth of over 100% last year. This proven growth may make Yeo Hiap Seng a more expensive stock relative to its peers.
Is Yeo Hiap Seng and the sector relatively cheap?
The food product industry is trading at a PE ratio of 11x, in-line with the Singapore stock market PE of 15x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 9.96% on equities compared to the market’s 7.99%. On the stock-level, Yeo Hiap Seng is trading at a lower PE ratio of 5x, making it cheaper than the average food product stock. In terms of returns, Yeo Hiap Seng generated 25.16% in the past year, which is 15.20% over the food product sector.
What this means for you:
Are you a shareholder? Yeo Hiap Seng recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. In addition to this, its PE is below its food product peers, suggesting it is also trading at a relatively cheaper price. Perhaps the market isn’t as bullish of the growth going forward. If your investment thesis of the company hasn’t changed, now may be the right time to accumulate more of Yeo Hiap Seng, if you’re not already highly concentrated in the stock.
Are you a potential investor? If Yeo Hiap Seng has been on your watchlist for a while, now may be the best time to enter into the stock. Its industry-beating growth delivered have not been fully accounted for in its shares given its lower PE ratio relative to its peers. Before you make the decision to buy, I recommend you look at other fundamentals factors and see whether there is a reason why the stock may be trading at a discount in the food product sector.