Dairy Farm International - UOB Kay Hian 2022-03-07: 2021 Getting Past A Challenging Year – Cautious Outlook Ahead


Dairy Farm International - 2021 Getting Past A Challenging Year – Cautious Outlook Ahead

  • Dairy Farm’s weaker-than-expected net profit of US$103m (-62% y-o-y) for 2021 was largely expected as the company continued to contend with the negative effects of COVID-19. There were positive takeaways from the results, i.e. Maxim’s performance and continued strong free cash flow generation.
  • We remain cautiously optimistic about Dairy Farm’s outlook in 2022 with the key hurdle being Hong Kong’s management of COVID-19.

Dairy Farm reported weaker than expected 2021 net profit.

  • Dairy Farm (SGX:D01) reported 2021 revenue of US$9b (-12% y-o-y) and net profit attributable to shareholders of US$103m (-62% y-o-y). At the bottom line, the numbers missed our and consensus estimates. Nevertheless, there were still highlights in the result that bode well for a turnaround in 2022. These include:
    1. strong y-o-y performance from associate Maxim’s,
    2. continued high levels of free cash flow generation of US$818m (2020: US981m), and
    3. robust own-brand momentum across grocery and health & beauty segments.
  • Dairy Farm declared a final dividend of US$0.065 which, combined with the interim dividend of US$0.03, results in a full-year dividend of US$0.095.

Are we there yet?

  • The past 2 years have been an extremely tough period for Dairy Farm given challenges caused by COVID-19. In 2022, we believe that most of Dairy Farm’s key geographic segments should continue their reopening and recovery trajectory as the region learns to live with COVID-19 as an endemic.
  • The key unknown is Hong Kong which could remain a millstone around Dairy Farm’s neck in the medium term, although grocery and retail may see a near-term sales bump from panic buying. Nevertheless, we remain constructive on Dairy Farm and believe that we are past its trough earnings.

Hong Kong market seeing positives and negatives.

  • As in other Southeast Asian markets where COVID-19-related panic buying bolstered Dairy Farm’s results, it appears that it is Hong Kong’s turn with the company seeing panic buying at its Wellcome and Mannings businesses. Thus, its food and healthcare segments should witness an uplift in 1H22, offset by foot-traffic dependent brands being negatively affected.
  • On the results call, Dairy Farm's management cautioned that the company is “finding it tough” to maintain availability of its products with the supply chain stretched, partly due to the lack of availability of staff.

Share buyback does not appear likely.

  • Key companies within the Jardine Group have started significant share buyback programmes, thus leading to share price outperformance in the past six months vs their local benchmarks.
  • Although Dairy Farm did not completely rule out a share buyback programme, management stated that it will first and foremost look to see if its myriad businesses need to be invested in, and thereafter would consider deploying extra capital in a buyback.


  • Dairy Farm stated that while it has here to stay in the near to medium term.

Associates – past the trough?

  • Dairy Farm believes that Yonghui for Dairy Farm’s associates of US$25m vs a loss of US$42m in 2021.

Dairy Farm - Earnings forecast revision & recommendation

Adrian LOH UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-03-07
SGX Stock Analyst Report BUY MAINTAIN BUY 3.600 SAME 3.600