Dairy Farm - RHB Invest 2018-02-19: 2H17 To Play Catch Up

Dairy Farm - RHB Invest 2018-02-19: 2H17 To Play Catch Up DAIRY FARM INT'L HOLDINGS LTD D01.SI

Dairy Farm - 2H17 To Play Catch Up

  • Numbers from Hong Kong’s and Singapore’s Retail Sales Index look positive for Dairy Farm. We believe the health & beauty division would continue to be the key driver to Dairy Farm’s 2H17 results, given the strong run up in cosmetics and medicine sales in Hong Kong over the last few months of 2017. 
  • On the supermarket side, a higher consumer consumption in Singapore as well as the appreciation of the SGD and MYR, should lend some support to Dairy Farm’s food division in ASEAN.
  • Maintain BUY on the stock with an unchanged Target Price of USD9.53.   

Small store formats such as health & beauty and convenience stores to thrive on returning mainland Chinese tourists. 

  • Health & beauty and convenience stores are still dependent on mainland Chinese tourists’ spending. Given the uptrend in the arrival of mainland Chinese tourists, we expect sales in these two divisions to be stronger in 2H17. 
  • Moreover, the Hong Kong Retail Sales Index further showed that sales of cosmetics and medicine was up by an average of almost 9% y-o-y in 2H17. Henceforth we believe the Mannings stores would see an uptick along with the industry trend.

Sequential improvements in Supermarkets. 

  • The supermarkets in ASEAN were the key drag in the 1H17 results. We note that supermarket sales in Hong Kong was only up marginally in 2H17. We think it is time for the ASEAN side to improve overall. 
  • Thankfully, the supermarket sector in Singapore showed an improvement of 6.8% in 2H17. Coupled with a c.2% appreciation in SGD vs the USD, Singapore’s supermarkets should show decent improvements even if they were to lose some market share. 
  • Stabilising of the MYR in 2H17 should also end the currency drag from its Malaysia market, as it was experienced in 1H17.
  • Moving into 2018, we expect consumer sentiments to improve across the ASEAN region. An improved demand, together with the ramp up of the newly opened distribution centres in Singapore, the Philippines and Malaysia should help to see continued earnings improvement moving forward.

Steady growth in home and furnishing division. 

  • Given the new store opening in Hong Kong, we expect the increase in revenue to be offset by a slight dip in margins due to pre-opening costs and the gestation period.

Maintain BUY and Target Price SGD9.53. 

  • Overall, we remain fairly positive on Dairy Farm’s outlook given the uptick in consumer sentiment across the region and the uptrend of mainland Chinese tourists into Hong Kong.
  • Key risk would include the appreciation of USD over the regional currencies.

Juliana Cai CFA RHB Invest | http://www.rhbinvest.com.sg/ 2018-02-19
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 9.530 Same 9.530