DAIRY FARM INT'L HOLDINGS LTD (SGX:D01)
Dairy Farm - Hitting The Reset Button
- Maintain NEUTRAL with new DCF-derived Target Price of USD8.64 from USD9.60, 1% upside plus 3% yield.
- Dairy Farm recorded significant restructuring costs for its food division in 4Q18, resulting in a 77% y-o-y drop in PATMI to USD92m for FY18. Excluding one-off costs, core PATMI for the year that came in at USD424m (-9.1% y-o-y) – still missed, as Dairy Farm only consolidated 9M of Yonghui’s performance and has not included the share of results from its newly acquired associate, Robinsons Retail (RRHI PM).
A year of kitchen-sinking.
- With the new management announced at 1H18’s briefing, we believe Dairy Farm International Holdings (SGX:D01) took the opportunity to conduct a kitchen-sinking exercise in 4Q18 to make subsequent turnarounds faster.
- For the full-year, Dairy Farm recorded USD453m of restructuring charge for the food division in South-East Asia. The restructuring cost largely pertains to the impairment of goodwill and assets associated with its Giant supermarket/ hypermarket business, and provisions for the leases of underperforming stores. This was partially offset by USD121m net gain from business and property disposals.
Management deemed food division not viable in current form.
- The food division continued to be the primary factor of its underperformance. South-East Asia remained weak, while Hong Kong faced rising cost pressures. Excluding the restructuring charge, FY18 core operating profit for the supermarkets/ hypermarkets sub-segment fell 74% to USD34.1m.
- We believe the provision for underperforming stores could mean more store closures in FY19F. We expect to see gradual improvements in margins post-FY19.
Health & beauty division recorded solid results in FY1
- Health & beauty division recorded solid results in FY18, which helped to offset the weakness from the food division. FY18 sales grew 17%, while operating profit surged 59%.
- Moving into FY19, we expect the division to do well, with the continued growth in Hong Kong’s tourism sector.
Still NEUTRAL.
- We expect 16% growth in FY19 earnings largely due to the consolidation of Yonghui’s 12-month results, and contribution from RRHI.
- Management highlighted that there is no quick fix to the weakness in its food division, and would take at least five years to deliver the required improvements.
Juliana Cai CFA
RHB Securities Research
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https://www.rhbinvest.com.sg/
2019-03-04
SGX Stock
Analyst Report
8.64
DOWN
9.600
