16 May 2019
(Stocks Discussion) SGX: DairyFarm International Holdings Ltd (SGX: D01) ?
Discuss anything about share price, dividends, yield, ratios, fundamentals, technical analysis and if you would buy or sell this stock on the SGX Singapore markets. Do take note that the answers given by our members are just your opinions, so please do your own due diligence before making an investment!
Business Profile: This company itself may not be a household name, but it owns businesses that certainly are, such as Cold Storage, Giant, Guardian and 7-Eleven. The company also owns the franchising rights to operate Starbucks and IKEA in certain Asian markets. DFI therefore operates in the F&B, retail, groceries industry and consumer healthcare industries with over 6,000 stores
Financials: Revenue is growing for the business as Year-On-Year changes are all cosistent and positive, with greater revenue growth of around 4% from FY17 to FY18. This probably is reflective of the more mature and stable businesses that they operate in. Despite increases in revenue, operating income fell due to increase in admin & operating expenditures. DFI also incrased its investments in other companies which led it to higher goodwill from acquisitions. Significant changes in cashflow is due to investments in Joint Ventures and Associates and weaker working capital conditions.
Valuation: According to Morning Star, the shares are currently trading at P/S of 0.93 , P/E of 119 and P/B of 7.6. Simply Wall St's conclusion is that the shares are overvalued, based on consumer retailing P/E of 20.02X and a market P/E of 12.8X. Based on P/B ratio, the shares also seem overvalued with consumer retailing trading at P/B of 1.0X. Based on growing financial strength and presence, investors might have over-valued this stock.
Growth Strategy: Leveraging on economies of scale is one way to cut expenses, either by obtaining bigger bulk discounts or from lesser fixed costs due to consolidation of production. They may also be able to get better rental rates, since stores like Giant and Cold Storage are often viewed as key anchor tenants and the company can leverage on this. Improving supply chain measures have also reduced logistics cost and ensure on-time delivery which can also help to improve working capital management.
Risks: As with other retail businesses, the growth of e-commerce has changed the way people shop. DFI probably would need to adapt to these new trends by improving in-store customer experience or enhance online user-experience to compete against other businesses venturing into the e-commerce space. The recent investments in other businesses should also be closely monitored to ensure that business units don't canabalise each other, and that management doesn't lose focus from diversification.
How come Sheng Siong's share price has skyrocketed to the moon during this pandemic but Giant has languished? I think it boils down to management. Too old school and not adaptable to customer changing needs. I do not hold any positions in this. Perhaps it will change in time to come.
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