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3 Industries That Will Ride on a COVID-19 Recovery
By Royston Yang January 6, 2021 4 Mins Read
There's no right or wrong approach when it comes to investing.
Some investors may employ a bottom-up strategy, sifting for companies with strong financial metrics to invest in.
Others use what is known as a top-down methodology which involves searching for industries that are performing well before drilling down into specific companies within the industry.
This top-down approach can be useful in times of crises such as the current COVID-19 pandemic.
A wide swath of industries has been adversely impacted by the numerous lockdowns and border closures, resulting in plunging demand for goods and services.
Besides, movement control restrictions and social distancing guidelines have also limited large groups from gathering and resulted in lower levels of personal interaction.
These measures have led to pent-up demand for services that we may have taken for granted during good times.
Here are three industries that may see a surge in business activity once the recovery from the pandemic goes into full swing.
Perhaps the most obvious candidate for a sharp recovery is that of aviation.
Industry leader Singapore Airlines Limited (SGX: C6L) announced that it had cut 96% of its fleet capacity at the height of the pandemic last year.
A massive rights issue was also announced back then to shore up its balance sheet to prepare for a long winter.
The situation has not improved much in the last six months, with the scrapping of a proposed travel bubble with Hong Kong due to a surge in cases there.
In the meantime, Singapore is negotiating an air travel bubble with Australia while also unilaterally opening its border to Taiwan.
One bright spot is that air cargo volumes are going through the roof as more supplies need to be ferried to and fro, but this has been unable to replace the lost revenue from passenger travel.
If air travel is allowed to resume, Singapore Airlines will be the first company to benefit.
Others such as SATS Ltd (SGX: S58) and SIA Engineering Company Limited (SGX: S59) will also enjoy an uplift in revenue and profits.
Singaporeans are well-known for their love of two things: food and travelling.
While the former has not been an issue during this crisis, the latter has been almost completely stumped out by air travel curbs.
Citizens from all over the world have been forced to resort to domestic tourism as governments shut borders to prevent the spread of COVID-19.
Fortunately for local attractions, the Singapore government has introduced the SingapoRediscover vouchers, handing over S$100 to each eligible citizen for use on tourist attractions.
This initiative is supported by the Singapore Tourism Board and seeks to provide a lifeline for struggling tourism businesses that have seen revenues plunge in the wake of the pandemic.
Should a recovery take hold and air travel resume, there will be significant pent-up demand for overseas travel.
Companies such as Straco Corporation Ltd (SGX: S85), which runs the Singapore Flyer attraction, and Genting Singapore Ltd (SGX: G13), which owns the Resorts World Sentosa integrated resort, could witness a turn in their fortunes.
Another industry that has been hit badly by the pandemic is hospitality.
With a dearth of tourists, hotels here have seen record-low occupancy rates, while revenue per available room (RevPar) has also plunged.
Hotels here have mitigated some of the drastic drops in demand by being designated locations for people who have to serve their stay-home notices when they arrive from abroad.
However, the provision of this service has been unable to make up for the sharp decline in revenue and profitability for the hotels here.
Fortunately, the government has given the green light for Singaporeans to book hotels for staycations, helping to patch back some of the lost revenue.
Should the COVID-19 situation start to ease, hotels should see a large influx of travellers who have been rearing to venture abroad.
The immediate beneficiaries are hotel chains such as Hotel Properties Limited (SGX: H15) and Mandarin Oriental International Limited (SGX: M04)
Hospitality REITs such as Far East Hospitality Trust (SGX: Q5T) also stand to benefit as its portfolio consists mostly of local hotels.
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Disclaimer: Royston Yang owns shares of Straco Corporation Ltd and SATS Ltd.