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Dairy Farm International - CGS-CIMB Research 2020-07-30: COVID-19 Strikes Harder Than Expected

DAIRY FARM INT'L HOLDINGS LTD (SGX:D01) | SGinvestors.io DAIRY FARM INT'L HOLDINGS LTD (SGX:D01)

Dairy Farm International - COVID-19 Strikes Harder Than Expected

  • Dairy Farm International's 1H20 missed, with net profit (-35% y-o-y) meeting 40%/39% of our/consensus’ full-year EPS, mainly due to Maxim’s losses that hurt associate earnings.
  • Stellar grocery EBIT cushioned the dismal convenience and health and beauty (H&B) segments, but EBIT still fell c.10% y-o-y. 2H20F is still uncertain.
  • We reiterate our HOLD call with lower Target Price of US$4.63 (20x CY21F PER).
  • We believe the better entry point is closer to c.US$3.80 (16.5x CY21F PER).



Dairy Farm's 1H20 EBIT falls due to weak convenience and health and beauty

  • Dairy Farm International (SGX:D01)'s 1H20 Group EBIT fell c.10% y-o-y despite a stellar performance from the grocery retail segment (+ > 400% y-o-y), namely on weaker convenience store EBIT (-97% y-o-y) which was impacted by movement restrictions, physical distancing requirements and temporary store closures in Dairy Farm’s various markets.
  • Additionally, health and beauty EBIT was weaker (-c.75% y-o-y) with Mannings in Hong Kong materially affected by the lack of tourist arrivals and Southeast Asia being impacted by social distancing requirements towards the end of 1Q20.


Associates shrink c.78% y-o-y, impacted by Maxim’s

  • While 1H20 supermarket associate earnings grew (likely due to strong Yonghui results, in our view), we were taken aback by Maxim’s 1H20 losses of US$25m that were caused by a substantial reduction in restaurant customers and some temporary closures of outlets. This took associate earnings down 78.7% y-o-y to S$15.7m (from S$73.8m in 1H19).


Dairy Farm's interim dividend cut; 2H20F seems challenging

  • Dairy Farm announced a lower interim dividend of 5.0 US$ scts (vs. 1H19: 6.5 US$ scts), which was below our expectations.
  • Dairy Farm also mentioned that it expects trading conditions in 2H20F to continue to be challenging. While most of its major markets have loosened movement controls since Jul 2020, we believe improvements in the three weaker segments (convenience stores, health and beauty, Maxim’s) could be capped given HK’s recently tightened lockdowns in Jul 2020. We thus cut our FY20-22F EPS by 9.9-16.7% mainly as we moderate our sales growth and EBIT margins for the convenience stores, health and beauty, and Maxim’s.
  • We also trim our DPS forecasts for Dairy Farm.


Reiterate HOLD






Cezzane SEE CGS-CIMB Research | https://www.cgs-cimb.com 2020-07-30
SGX Stock Analyst Report HOLD MAINTAIN HOLD 4.63 DOWN 5.450



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