SINGAPORE (Mar 9): CIMB is downgrading its call on Dairy Farm International to “hold” from “add” previously with a lower target price of US$8.40 from US$9.18 after the group’s FY17 core net profit came in below the research house’s expectations, but marginally within consensus.
See: Dairy Farm's FY17 earnings fall 14% to US$404 mil on business change costs
The move comes as the research house cuts its FY18/19 earnings per share (EPS) estimates by 5.9/0.8% to reflect slower sales growth and lower margins, while also introducing FY20F forecasts.
In a Friday report, lead analyst Cezzanne See says that while she is “encouraged” by the group’s unchanged final dividend of 14.5 US cents, she believes the group’s ongoing strategic review led by new CEO Ian McLeod may take time to bear fruit.
The lower target price is a result of a lower price-to-equity ratio (PER) of 21 times from 23.7 times previously, close to -1 standard deviation of its average mean as CIMB rolls forward to CY19 EPS.
“The lower PER is because we believe it may take some time to bear fruit from the ongoing strategic review in CY18. Upside/downside risks are better sales growth and margin expansion, and vice versa,” explains See.
Looking ahead, the analyst foresees Dairy Farm’s associates, Yonghui and Maxim, as key to the group’s net profit growth in the near term. She forecasts for associate earnings to grow by 10.5%/10.5%/4.5% in CY18/19/20.
“In CY17, Yonghui opened net 292 new stores in mainland China. Maxim’s saw stellar sales and profit growth, largely due to strong performances from its branded products, particularly mooncakes, and its business in mainland China,” notes See.
As at 2.53pm, shares in Dairy Farm are trading 2.43% lower at US$8.02 or 5.8 times Dec 18 book value.
