DAIRY FARM INT'L HOLDINGS LTD
D01.SI
Dairy Farm - Turning more efficient
- Expect more efficient operations by FY17F
- We believe IT, procurement and supply chain investment should yield results by FY17F
- 2H15/FY15 earnings within expectations
- Maintain BUY, TP US$7.03
Maintain BUY on compelling valuations.
- We maintain our BUY rating with an SOTP-based TP of US$7.03. DFI trades at an attractive valuation of 17.9x FY16F PE at -1SD of its 7-year mean.
- With no major negative surprises in FY15 results, we continue to be positive on the stock.
- Strategies like DC enhancements and inventory management systems are being put in place to turn more efficient. We expect growth to pick up in FY17F.
- The share price now values DFI’s core business at just 20x PE.
Growth supported by unit volume sales, better efficiencies.
- DFI has been investing in IT, procurement and supply chain, and we expect this to at least yield some results by FY17F.
- We have already seen better inventory numbers in FY15 and we believe this should continue going into FY17F.
- On the demand side, DFI will be to drive average unit volume growth via building products and brands that identify with customers.
FY15 results in line.
- FY15 results were within expectations.
- Revenue was US$11.1bn (+1% y-o-y) while earnings were US$424m (-17% y-o-y). Flat revenues were dragged by currency translation in Malaysia, but operating margins improving sequentially in 2H15 on better operating efficiencies.
- A final dividend of 13.5 UScts was declared, below our 16.5 UScts forecast. However, the dividend payout ratio is within the 59-69% range over FY09-14.
Valuation:
SOTP valuation methodology.
- Our target price of US$7.03 is derived from sum-of-parts valuation methodology.
- We value DFI's core business at US$6.64 based on DCF and the 20% stake in Yonghui based on the market value at US$0.75 and net debt at US$0.36 per share.
Key Risks to Our View:
Significant earnings disappointment.
- We expect earnings growth to accelerate into FY17F as management rings in better operating efficiencies.
- We believe it would take a significant earnings disappointment to derail our upside bias on the stock. Nonetheless, our earnings forecast is conservative.
Alfie Yeo
DBS Vickers
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Andy Sim
DBS Vickers
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http://www.dbsvickers.com/
2016-03-10
DBS Vickers
SGX Stock
Analyst Report
7.03
Same
7.03
