Dairy Farm International Holdings’ (DFI) 1HFY2021 ended June results missed consensus forecasts by a wide margin, prompting RHB Group Research to lower their target price to US$4.42 ($5.98) from $4.78 previously.
RHB’s Singapore research team cut their FY2021-2023 forecasts by 31%, 12% and 6% respectively, after DFI’s core patami for 1HFY2021 fell 70% y-o-y to US$32 million, making up only 10% of RHB and consensus forecasts.
The lower patami was due to a larger-than-expected dip in grocery retail earnings as well persistent weaknesses in DFI’s health and beauty segment.
See also: Dairy Farm International sees 85% drop in 1H21 earnings to US$17 mil on ongoing Covid-19 headwinds
Beyond the near term-term challenges, RHB remains upbeat on Dairy as a proxy to cyclical recovery, given its entrenched network of stores across regions and sound business strategies in place. “A broad economic reopening will bode well for its convenience stores, restaurants, and H&B businesses, in our view,” the team adds.
The team views the recovery momentum of convenience stores and restaurant businesses should sustain moving forward as the Covid-19 situation improves and restrictions are eased in DFI’s key markets. “That said, the high FY20 grocery retail earnings base and continued weakness in H&B are likely to cap the recovery in the near term,” the team cautions.
RHB also believes DFI’s ongoing initiatives, including the expansion of in-house brand products, upgrading of store formats, and a push in digital capabilities, will help the group mitigate the impact from the pandemic.
“This also places it in good position to capitalise on a cyclical recovery once COVID-19 is broadly contained following the completion of mass vaccinations worldwide,” the team adds.
Risks to their recommendation include delays in mass vaccination progress and escalating social tensions in Hong Kong, which could deter tourism recovery.
As at 3.54pm, shares in DFI are down 19 US cents or 4.77% lower at US$3.79.
Photo: Bloomberg
