Analysts have downgraded and cut their target prices for Dairy Farm International Holdings (DFI) after it reported an 85% y-o-y drop in its 1HFY2021 ended June earnings.
See: Dairy Farm International sees 85% drop in 1H21 earnings to US$17 mil on ongoing Covid-19 headwinds
DBS Group Research has downgraded its call from “buy” to “hold”, with analyst Woon Bing Yong dropping his target price from US$4.78 ($6.47) to US$3.96.
CGS-CIMB Research also downgraded from “add” to “hold”, with a lower target price of US$4.00 from $5.40 previously.
UOB Kay Hian maintained its “buy” call but with a lower target price of US$4.53, from US$5.19 previously.
RHB Group Research had earlier released a research note last week also keeping its “buy” call but with a lower target price of US$4.42 from $4.78 previously.
See: RHB lowers TP for Dairy Farm International following sharper-than-expected dip in grocery earnings
DBS’s Woon sees headwinds ahead for DFI’s grocery retail business amidst a competitive market. “We think the grocery retail business may face challenges ahead in the form of normalizing demand in the regions where the pandemic situation has stabilised,” he says in an August 2 note.
He has revised his earnings forecasts downwards to account for the weaker than expected performance across DFI’s segments. “The share of loss of associates, especially Yonghui Superstores, also came as a surprise and accounts for a large part of our reduction in earnings as we had previously forecast profits for the associate,” he adds.
CGS-CIMB analyst Ong Khang Chuen has also downgraded DFI to “hold” in view of the “near-term challenging operating environment”.
Noting that DFI’s 1HFY2021 underlying profit of US$32.1 million “disappointed”, Ong is bearish on DFI’s outlook given the lack of Chinese tourist arrivals in Hong Kong and the ongoing Covid-related movement restrictions in Southeast Asia.
He anticipates a slower pace of margin recovery ahead for DFI. “While transformation initiatives helped improve cost efficiencies, DFI is reinvesting gains into price investment campaigns to boost brand competitiveness. This may imply a slower pace of margin recovery ahead.
To that end, Ong has cut his FY2021-2023 earnings per share forecasts by 0.6%-36%.
“We will turn more positive on 1) Hong Kong-China border reopening allowing quarantine-free travel, or 2) stronger margin expansion,” he says.
Meanwhile, UOB Kay Hian’s Adrian Loh has slashed his earnings estimates for FY2021-2023 by 9%-40%, with the majority of the impact in 2021 due to the prolonged negative impact from Covid-19. “Our prior assumption of zero revenue growth for both grocery and health & beauty segments in 2021 was clearly overly bullish and we have now factored in a 10% and 7% y-o-y,” he explains.
For more stories about where the money flows, click here for our Capital section
He has also rolled over his valuation year to 2022, pegging his FY2022 EPS estimate to a target multiple of 24.7 times, which is one standard deviation below its five-year average P/E of 30.5 times. He had previously used a mean P/E anticipating better-than-expected normalisation of post-pandemic economic conditions.
“As the region progresses towards having a greater proportion of its population vaccinated, and further evidence of its business transformation surfaces, we should expect DFI to trade at higher multiples,” he adds.
As at 4.39pm, shares in DFI are down 11 US cents or 2.93% lower at $3.65.
Photo: Bloomberg
