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Dairy Farm - RHB Invest 2015-12-02: Banking On a Steady Growth Track Record

Dairy Farm - RHB Invest 2015-12-02: Banking On a Steady Growth Track Record DAIRY FARM D01.SI 

Dairy Farm (DFI SP) - Banking On a Steady Growth Track Record 

  • We are cognisant of ongoing challenges in Dairy Farm’s operating environment, heading into FY16. However, the company has a track record of steady growth, with net profit never declining for two years in a row since 2000. 
  • In the meantime, current dividends are sustainable and would provide a cushion to its share price. Its investment into Yonghui could bring about a more meaningful entry into China. 


 Poor performance in FY15 partly due to the strength of the USD. 

  • We are cognisant of ongoing challenges in Dairy Farm’s operating environment, especially in ASEAN where consumption is weak. However, we believe the poor performance in FY15 was compounded by its headquarter costs and reporting currency being in USD terms, which currency has appreciated significantly against many regional others. 
  • The company’s performance remains resilient in North Asia, and especially in Hong Kong. 

 Latent potential in retail giant. 

  • We believe that its ongoing initiative to drive organisation-wide business synergies could produce gains over the medium term. This remains on track, including the standardisation of back-end supply chains and IT systems, more private label products and introduction of new fresh food distribution centres in Singapore and Malaysia. 
  • Its ongoing investment in Yonghui (CH 601933, NR) will provide a platform to grow further into China. 

 Dividends likely to continue. 

  • Dairy Farm has consistently paid out a dividend at least equal to the year before, even throughout each financial crisis. Since 2008, its DPS has been at least 23 US cents, and we do not expect this to decline going forward – even following its biggest investment to date in Yonghui Superstores (601933 CH, NR). 
  • Its dividend payout ratio is only at an estimated 40% of annual operating cashflow. 

 Track record of growth over the longer-term. 

  • The company has a track record of growth over the longer term, while profit has declined YoY only on two occasions since 2006. 
  • We believe the current weakness offers a long-term opportunity for shareholders and upgrade our call to BUY, with a DCF-derived TP of SGD7.80, implying 21x FY16F.


James Koh RHB Research | http://www.rhbinvest.com.sg/ 2015-12-02
RHB Research SGX Stock Analyst Report BUY Maintain BUY 7.80 Same 7.80


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