The ramp-up in vaccinations and “better containment” of the Covid-19 situation has prompted RHB Group Research to upgrade their rating for Dairy Farm International Holdings (DFI) from “neutral” to “buy”.
“We believe DFI’s current valuation offers a good opportunity for investors seeking to position for a cyclical recovery,” the Singapore research team says in a July 19 research note.
RHB has kept its US$4.78 target price for the counter unchanged, implying some 17% in upside and 4% in yield.
The team is forecasting an earnings growth of 10% for DFI’s FY2021 ending December, driven by improved foot traffic to its restaurants and convenience stores as lockdown restrictions ease. This is expected to offset the tapering off of its high grocery retail earnings base as consumer behaviour and government subsidies normalise.
“Home furnishings should see further sales growth underpinned by outlet expansions and rising e-commerce sales,” the team adds. Meanwhile, its health and beauty segment could still face challenges until tourism can resume, thus boosting shopping mall traffic.
Looking ahead, the team highlights that DFI is looking to strengthen its operation in China via product innovation and promotion whilst upgrading its IT systems to enhance customer shopping. In Hong Kong, the company intends to protect its market strength through a price reinvestment campaign and the offering of Meadows products.
For its Southeast Asia markets, the team anticipates that DFI’s rebranding and introduction of new concept stores should continue to deliver positive results.
The team is also upbeat on DFI’s push for digitalisation in light of Covid-19. “The pandemic compeled the management to shift more strategic focus or priority to enhancing the e-commerce capabilities and digitisation network,” they remark.
In addition, DFI is also emphasising sustainability through its partnerships. The company is launching a new range of cage-free eggs under Meadows brand whilst the introduction of IKEA ‘Plant Balls’ has significantly reduced the climate footprint vs the one for regular meatballs.
Other pandemic-driven changes include support for staff through the Food Drinks Allied Workers’ Union (FDAWU) initiative and cutting down plastic usage by 14%.
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The RHB teams notes that risks to their recommendation include delays in mass vaccination progress and escalating social tensions in Hong Kong, which could deter tourism recovery.
As at 3.41pm, shares in DFI are up 6 cents or 1.47% higher at US$4.15.
Photo: Bloomberg
