Why Are Dairy Farm International Holdings Ltd’s Shares Down By 10% In The Last 6 Months?

Dairy Farm International Holdings Ltd (SGX: D01) is a pan-Asian retailer with over 6,600 outlets. The company’s stores are in a wide variety of formats, including supermarkets, hypermarkets, convenience stores, pharmacies, home furnishing, and more. In Singapore, Dairy Farm’s store brands include Guardian, Cold Storage, Giant, and 7-Eleven.

Over the last six months, Dairy Farm’s stock price has declined by 9.5%. What may have caused this?

Reasons for a decline

There can be many reasons behind a stock’s price decline. But, the reasons can generally be classified as business-performance-related, or investor-sentiment-related.

The former deals with how a stock’s business has performed or is expected to perform. And in terms of business performance, one of the really important numbers would be the stock’s profits.

Meanwhile, the latter is about the overall mood of market participants – are investors more greedy than fearful, more pessimistic than optimistic et cetera? In general, negative emotions (fear and pessimism) tend to drag down the prices of stocks while positive emotions (greed and optimism) tend to push up stock prices.

The case with Dairy Farm

In Dairy Farm’s case, I believe it’s the latter at work. Here’s a table showing some important items from Dairy Farm’s income statement for the first halves of 2017 and 2016:

Source: Dairy Farm 2017 first half earnings

From the above,  we can see that Dairy Farm’s 2017 first half performance was pretty positive, with underlying profit up by 6% year-on-year to US$211 million.

Yet, as I mentioned earlier, the company’s shares are down by 9.5% in the last six months. Thus, it is likely that investors’ sentiment turned negative recently. But what may have caused the change in mood?

One possible reason is that investors may be perceiving the business outlook of Dairy Farm to be less positive compared to a few months ago, since competition in the supermarket and hypermarket business remains keen.

In fact, Dairy Farm shared a similar sentiment in its 2017 first half earnings release (emphasis is mine):

“Solid profit growth was achieved in the first half despite lower sales seen in the Group’s supermarkets and hypermarkets operations. While the outlook for the remainder of the year is expected to remain challenging for the supermarket and hypermarket activities in Southeast Asia, the Group’s other businesses continue to make steady progress.”

Furthermore, online retailers such as and Alibaba continue to make inroads in growing their eCommerce activities, as well as entering the world of brick-and-mortar retail. In July this year, Amazon launched its Prime service in Singapore.

A Foolish conclusion

I think that investors’ sentiment for Dairy Farm recently turned negative, possibly driven by the expectation of major challenges appearing for the company’s retail business going forward.

The threat from online retail is real. So, it is important that investors pay attention to how well Dairy Farm can cope with the changes in the retail landscape in the quarters and years 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. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned. The Motley Fool Singapore has recommended shares of Dairy Farm International Holdings and