Riding The ASEAN And China Growth Story With Dairy Farm International Holdings Ltd

The name Dairy Farm International (SGX: D01) might not be commonly heard in Singapore. But the company runs Cold Storage, Giant, Guardian and 7 Eleven outlets in Singapore.

It is more than just a Singapore company. It owns more than 6,400 outlets either directly or with joint-venture associates in 12 Asian countries. Some of these countries are forecast to grow rapidly over the next decade.

Being in the supermarket and pharmacy business, Dairy Farm should have stable demand for the products offered in its outlets. And with the rising middle class in Asia, demand could grow, which in turn could prove beneficial.

Dairy Farm shares, however, haven’t performed well. They are down some 34% over the last year.

Was this decline due to the shares being overvalued or was the company indeed performing poorly? There is one way to find out. How did the company perform in the last quarter?

One of the positives was growing topline sales of approximately 5%. This shows that there is healthy demand for the products sold at its outlets.

However profit was lower, due to lower margins. This was also mentioned by the company’s Chief Executive Officer. He went on to explain that it was necessary to look beyond the current situation and invest for the future. This is exactly what Dairy Farm has been doing.

In August it entered the China market through a joint venture with Yonghui Superstores, which is one of the country’s largest supermarket chains. They also bought over supermarkets in Macau to complement their other businesses and to strengthen its retail presence there.

Other than expanding into new markets, the company is also investing in IT infrastructure to ensure that it is well positioned for the future.

With its share price currently at US$6.51, Dairy farm is trading at a P/E of 16 with a dividend yield of about 3.8%. While this might seem a little high, its closest competitor Sheng Siong (SGX: OV8) is trading at a P/E of 25. This could indicate that Dairy farm is not overvalued at current levels.

Additionally, Dairy Farm’s merit is that with its exposure to the growing Asian economies it might have more interesting growth prospects. While waiting for the capital growth, investors could enjoy the decent market-beating dividend yield of 4%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Esjay owns shares in Dairy Farm.