SINGAPORE (Aug 7): RHB Research continues to rate Dairy Farm International at “buy” with a target price of US$9.53 ($13), after the Jardine Group member last week announced a 7% in 1H earnings to US$213 million.
See: Dairy Farm posts 7% increase in 1H earnings to US$213 mil
In a Monday report, analyst Juliana Cai highlights the group’s health & beauty segment as the star performer for the half year, with its revenue growth driven by increased Chinese visitors to Hong Kong as well as store openings in China.
“In our recent visit to HK, we note that Dairy Farm’s Mannings stores continued to be crowded compared to peers like Bonjour. We expect the health & beauty business to continue its strong performance in 2H17, on positive y-o-y growth in Chinese visitor arrivals,” remarks Cai.
While the analyst acknowledges that challenges remain for the group’s supermarket division – in particular the Cold Storage outlets, which were losing market share to competitor Sheng Siong as of late – she thinks the threat by Amazon.com’s recent entry into the Singapore market may be limited for now, as the product range provided by the e-commerce giant is still narrow.
See: Amazon announces launch of Prime Now in Singapore
To reflect these challenges, RHB has lowered its forecast by about 4% for FY17-19F.
“We continue to believe that there is medium-term margin upside from the setting up of fresh distribution centres. But we note that near-term operating margins could still be eroded if weaknesses in sales persist,” concludes Cai.
As at 10.25am, shares of Dairy Farm are trading US$1.35 at $7.82.
