Dairy Farm - RHB Invest 2020-04-09: Positive On Groceries, Negative For Other Formats


Dairy Farm - Positive On Groceries, Negative For Other Formats

  • Maintain NEUTRAL with new Target Price of USD4.95, from USD5.05, 2% upside.
  • More countries are imposing movement restrictions to contain the spread of COVID-19. Dairy Farm (SGX:D01), being a major player in the grocery retail segment, is likely to see its supermarket sales improve on the increased number of people staying at home. However, this positive upswing could be offset by declines in its other formats.

Regional grocery sales rose amidst COVID-19 fear.

  • Fear of the pandemic and implementation of social distancing measures have led to panic buying in supermarkets around the world.
  • Based on the latest statistics, February supermarket sales for Hong Kong (Dairy Farm’s largest market) was up 12.2% y-o-y. Taiwan supermarket sales jumped 13.4% y-o-y, while Singapore supermarket sales surged 15.5% y-o-y, despite the usual post-Lunar New Year lull season.
  • We expect Dairy Farm’s other regional markets, including Malaysia and Indonesia, to see similar robust sales for the supermarket category as the Movement Control Order in Malaysia and lockdown in Jakarta, Indonesia, would increase the demand for food at home.

Expect supermarket sales to remain resilient for some time.

  • Though the panic buying behaviour is likely to taper off, we believe stay home measures would only be eased in stages so long as COVID-19 remains. This is because a sudden surge of people going back to work and school could trigger another wave of viral contagion.
  • The increased awareness and need for the virus containment are likely to lead to a decline in dining out and a preference for eating at home instead.

Other formats would be negatively affected.

  • While we see some positive respite from the supermarket formats, other retail trade is likely to suffer as social distancing and lockdown measures kick in, deterring consumers from going out. We expect to see sales decline for its home and furnishing and convenience segments.
  • Contribution from its associate, Maxim’s, is also expected to be adversely impacted.
  • The health and beauty segment could see some positives from increased sales of COVID-19 prevention products such as masks, hand sanitisers and healthcare in the earlier months when stocks are still available, but sales of other beauty products are likely to be affected.

Changes in earnings and Target Price.

Juliana Cai RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-04-09
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 4.950 DOWN 5.05