Dairy Farm International Holdings

Dairy Farm International Holdings | Hold

March 26 close: US$7.88

Target price: US$8.40

Broker: CGS-CIMB, March 24

Dairy Farm plans to acquire an 18.25 per cent stake in, and be a partner with, Robinsons Retail Holdings in a deal worth around US$520 million (S$682 million). We are positive the deal could add scale for its Philippines business, given Robinsons Retail Holdings' size.

The stake could translate to about US$20 million to US$22 million to Dairy Farm's associate income, which stood at US$144 million last year, but the additional associate income accounts for only around 3 per cent to 4 per cent of Dairy Farm International's estimated 2018 to 2020 profit before tax of US$599 million to US$657 million.

We maintain our estimates and call pending further details and completion of the deal.

While we believe the change in leadership – new chief executive Ian McLeod joined last September – could usher in positive winds of change, especially for Dairy Farm's weak South-east Asia supermarket and hypermarket division, we believe meaningful improvements will take time to bear fruit.

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