SINGAPORE (Aug 4): RHB is maintaining its “buy” call on Dairy Farm International with a target price of US$10.00 ($13.59) on the back of the group’s 7% increase in earnings which came in line with RHB’s expectations.
See: Dairy Farm posts 7% increase in 1H earnings to US$213 mil
Dairy Farm’s Health and Beauty segment saw the highest jump in revenue of 3% with margines expanded ahead of expectations, led by improvements in Hong Kong, Macau, Indonesia and China.
In a Friday report, analyst Juliana Cai says, “We believe this is attributed to the operational improvement in Indonesia and the Philippines. We also think that Dairy Farm could have realised reduced rental pressure in Hong Kong for its Mannings stores in 1H17.”
The group’s convenience stores also performed well following the store expansion in China and returning Chinese tourists to Hong Kong and Macau.
However, the margin expansions in the supermarket division were not in line with the analysts’ expectations.
This was due to the challenging operating environment in Malaysia, Singapore and Taiwan that caused sales and margins in this division to drop.
“While we think the setting up of the fresh distribution centres would enhance gross margins in the medium term, we note that operating margins would still be eroded if weaknesses in sales persist,” says Cai.
A sturdy growth was also seen in the group’s home furnishing segment, with strong sales in the Taiwan and Indonesia IKEA.
“We expect an even stronger performance next year as there would be an additional store expansion in Hong Kong and Jakarta later this year,” adds Cai.
Shares in Dairy Farm are trading 4 US cents lower at US$8.02 as at 10.06am.
