Dairy Farm International - Phillip Securities 2017-12-18: Staging A Comeback

Dairy Farm International - Phillip Securities 2017-12-18: Staging A Comeback DAIRY FARM INT'L HOLDINGS LTD D01.SI

Dairy Farm International - Staging A Comeback

  • Stronger performance from Health & Beauty, Home Furnishings and Yonghui should mitigate slower sales from Food businesses in Malaysia and Indonesia.
  • Improving macro fundamentals, new store and margin gains should underpin growth BUY with a SOTP-derived target price of US$9.89.


  • Dairy Farm International Holdings Limited (Dairy Farm) is a leading Pan-Asian retailer. The Group, together with its associates and joint ventures, operated over 6,600 outlets across 12 markets. 
  • Its four divisions include Food; Health and Beauty; Home Furnishings; and Restaurants.


1. Food to turnaround. 

  • Weakness in the hypermarket and supermarket operations in Southeast Asia, in particular Malaysia and Indonesia ahead of their elections in 2018. However, we have seen signs of the market turning around in Singapore. Dairy Farm has also returned to the Singapore store-bidding scene. 
  • Meanwhile, in Guangdong, China, it is ramping up its 7-Eleven store count (target to reach 1,000 stores by end-FY18). It has also acquired the remaining 34% interest in Rustan’s in the Philippines, in line with its strategy to move upscale.

2. Stronger Health and Beauty performances. 

  • Return of mainland tourists to Hong Kong and Macau to boosts retail sales. Meanwhile, Indonesia continues to benefit from the store rationalization in 2016, and its shift of sales mix towards more beauty offerings.

3. New stores to drive growth in Home Furnishings. 

  • The fourth IKEA store in Tsuen Wan, Hong Kong opened in Oct-17 and a site for a second store in Jakarta had been secured.

4. Multiple margin drives.

  1. Scale enhanced in three distribution centres – Singapore (opened in May-16), Philippines (opened in May-17) and Malaysia (to open in 2H17).
  2. Better sales mix of higher margin products:
    1. higher Fresh food;
    2. more Corporate Brand (private label) items;
    3. upscale market expansion; and
    4. increase Ready-to-Eat products.

5. Fast growing associates to boost earnings

  • Yonghui and Maxim’s contribute over US$100mn or 20% to the Group’s EBIT. 
    • Yonghui: Strong 9M17 Revenue/Profit of 17.0%/70.7% YoY. 
    • Maxim’s: Strong 3Q17 Revenue/Profit on record mooncake sales; 
    • Acquired Starbucks franchise stores in Singapore, with over 130 stores currently in operation.


  • Maintain BUY with SOTP-derived TP of US$9.89. 
  • Higher FY17/18e earnings driven by store openings, improving macro fundamentals in key markets, better stores performance post-rationalization exercise, margin gains and higher contributions from associates.

Soh Lin Sin Phillip Securities | http://www.poems.com.sg/ 2017-12-18
Phillip Securities SGX Stock Analyst Report BUY Maintain BUY 9.890 Same 9.890