by winston » Tue Oct 01, 2013 7:23 pm
Dairy Farm: BUY (Initiating Coverage); US$10.11; DFI SP
Direct proxy to Asia's growth
Price Target : 12-Month US$ 11.60
• Beneficiary of rising middle class population and food consumption in Asia
• Stock offers defensive earnings and sound financials
• Trading at undemanding valuations, recent selldown provides entry opportunity
• Initiating coverage with BUY, US$11.60 TP
Direct proxy to consumption growth in Asia. Dairy Farm (DFI) is a leading pan Asian retailer, operating over 5,600 supermarkets, hypermarkets, health and beauty stores, convenience stores, home furnishing stores. DFI offers exposure to rising Asian consumption as its retail operations are diversified across Asian markets, with different store formats targeting various consumer segments.
Defensive earnings, sound financials. We like DFI for its defensive earnings, strong net cash generation. DFI has paid out >50% of its earnings over the last 5 years at least. Net cash of US$420m as of 1H13 also provides warchest to pursue inorganic growth opportunities.
Recent share price weakness provides an entry opportunity. We see a window of opportunity to accumulate on this counter. DFI has corrected by c.23% from May’13, more than STI Index. Valuation is attractive at 25.5x FY14F PE, below its last three years’ average valuations.
Initiate with Buy, TP US$11.60. We forecast DFI’s revenue and earnings CAGR to be 7% and 8%, respectively for the next 3 years, driven by new store openings and 3% SSSG. Our DCF based TP of US$11.60 TP implies a reasonable 29x FY14F PE, below DFI’s recent valuations of +1 SD and 31x forward PE since January 2012. We initiate coverage of DFI with a Buy recommendation.
Source: DBS
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