Dairy Farm’s dividend lure

SINGAPORE (March 17): Shares in retailer Dairy Farm International Holdings are up 24.1% this year as the company continues to turn its business around. On March 2, the operator of Giant supermarkets and Guardian stores reported a 7% increase in underlying earnings for FY2016 to US$460 million ($650 million).

In FY2015, Dairy Farm’s underlying earnings fell 14% to US$428 million. The earnings growth was driven partly by a 13-basis-point net improvement in operating margins as well as increased contributions from Yonghui Superstores Co and Maxim’s. Dairy Farm owns a stake in Yonghui, an operator of hypermarkets in China. Maxim’s is its Hong Kong restaurants business.

CIMB Research has raised its core earnings forecasts for FY2017 and FY2018 by 8% and 5% respectively, reflecting higher margin assumptions. It has an “add” rating on the stock, with a price target of US$9.18. “Overall, we are positive on the stock’s margin recovery initiatives that have flowed through the numbers earlier than expected,” says CIMB’s Jonathan Seow in a March 3 report. “We are confident that Dairy Farm has truly turned the corner.”

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