4 Reasons Dairy Farm International Holdings Limited Is on My Watch List
Dairy Farm International Holdings Limited (SGX: D01) is a pan-Asian retail group that operates retail stores such as hypermarkets, supermarkets, drugstores, and convenience stores. The group’s stores are branded under familiar names such as Cold Storage, Guardian Health and Beauty, and 7-Eleven. DFI has a presence in Singapore, Malaysia, Indonesia, Hong Kong, and China.
For H1 2019, DFI reported a 3% year-on-year fall in sales to US$5.8 billion, while net profit remained flat at US$178 million. There have been persistent headwinds in the brick-and-mortar retail segment, with the rise of e-commerce threatening to permanently disrupt the retail scene. DFI has admittedly been slow to catch on to the technological wave, and as a result, it has lagged behind its competitors.
DFI’s hypermarkets segment, under the “Giant” brand, is not viable in its current form, and there are plans to restructure the division to better serve customers. The group’s margins are under pressure, and its “fresh” section is also in need of change.
However, here are four reasons the group is still on my watch list.
1. Large impairment recognised
Last year, DFI recognised a huge impairment loss of US$453 million as a restructuring charge for the hypermarkets division. This related to the goodwill and assets under the Giant brand as well as the leases on underperforming stores. As a strategic review had been undertaken prior to this massive write-down, there should be no further major impairments made that will hit the income statement.
2. Management’s candour
Management was very candid in its FY 2018 earnings report, acknowledging that it had been slow to react to changes in the retail landscape, and also lagged behind in the adoption of the necessary technologies that would help make the business more competitive. This brutal honesty was a refreshing change when compared to companies that preferred to sweep problems under the rug. Admitting mistakes and striving to do better are some of the hallmarks of a great management team.
3. Strategic imperatives
As part of management’s transformation plan for the group, it outlined five strategic initiatives that will allow the business to build a platform for future growth. These are (in no order of importance): grow in China, maintain strength in Hong Kong, revitalise Southeast Asia, build capability, and drive digital innovation. Management has provided a clear road map of where the business should be headed, and the team should be lauded for being clear and focused.
4. Long-term focus
The business continues to focus on the long term in evolving and adapting to changes. CEO Ian McLeod mentioned that these strategic initiatives will take at least five years to bear fruit, and investors need to be patient with the group in the meantime. I like the fact that the business has grown to where it is now through the long-term orientation of its management team, and I believe the team can continue to steer the business through rough waters and find better days ahead.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Dairy Farm International Holdings Limited. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.