DFI Retail Group

http://infopub.sgx.com/FileOpen/0122.ash...eID=386931

Big boy reduced stake from 7.25% to below 5%.....

That explains why it dropped so much

Dairy Farm has released its end-year report for 2015 recently. Here is my view on the company.

The gross margin remains pretty stable at about 29-30%, but selling and distribution expense, a key expense has increased in the last few years. The expense has grown faster than the revenue. Sales increased by 7-8% from FY2013 to FY2015, while the expense increased more than 12% over the same period. The EBITDA has gone down from US$747 million in FY2013, to US$643 million in FY2015, a reduction of about -15%.

The net margin has been eroding since FY2013. The overall net profit margin has gone down from 4.6% in FY2013, to 3.8% in FY2015. The down-trend has no sign of slowing down, IMO

The company asset turnover, with definition of sales over total asset, is slightly below at 2.3x in FY2015, comparing with 2.6x in FY2013. Factoring the recent major acquisitions, it has shown that the company is able to push sales as fast as before, IMO.

One major change in the company fundamentals, is the recent acquisitions. The price tag of US$910 million acquisition of YongHui, has turned the company from a net cash position of about US$470 million in FY2014, to a net debt of US$480 million in FY2015. The balance sheet has worsened.

The partnership with YongHui and JD.com with a model of Online-to-Offline commerce (O2O) has yet produced any positive result. YongHui’s earning in 2015 has eroded due to competition, with lower margin.

The gross margin and asset turnover remain relatively stable, indicating that the company operating processes remains sound albeit weakening. Annual dividend payout has been reduced from 23 US cents to 20 US cents, a reduction of about 15%, comparable to EPS reduction in FY2015.

How about the valuation? The EBITDA in FY2015, is US$643 million. The quality of the company has been weakened by negative outlook in profitability, reducing dividend payout, and a poorer balance sheet. I reckon, an EV/EBITDA of 12 is suitable. The net debt is US$482 million, with a negligible minority interest, the fair price is estimated as around US$5.0-US$5.5 based on current outstanding 1352 million shares. The dividend yield, based on dividend of US 20 cents per share, is about 3.6%-4.0%.

As a comparison, Sheng Siong is having a EV/EBITDA of 13-14, due to the good profitability outlook, stronger balance sheet, and growing dividend payout. The dividend yield, based on dividend of 3.5 cents per share, is about 4.1%.

All comments are welcomed.

(not vested, but review together with my review on Sheng Siong)

In their recent briefing, management said that they expect their online offering for all of their IKEA franchises to be up by the end of this year.

They said that their health and beauty online offering in Singapore was a prototype (Guardian, I suppose?), and that they would use this model for their roll-out in the region.

They also said that they expect to have to go online for all of their formats in 5 years time.

Their outlook was quite muted. I think we can expect margins to continue to be squeezed.

(15-03-2016, 10:16 PM)owq Wrote: In their recent briefing, management said that they expect their online offering for all of their IKEA franchises to be up by the end of this year.

They said that their health and beauty online offering in Singapore was a prototype (Guardian, I suppose?), and that they would use this model for their roll-out in the region.

They also said that they expect to have to go online for all of their formats in 5 years time.

Their outlook was quite muted. I think we can expect margins to continue to be squeezed.

To add-on, supermarket/convenience stores biz is the major segment i.e. 74%, health & beauty is 21%, and Home Furniture is only 5%. Furthermore, the supermarket biz is having the larger margin erosion i.e. 2.7% in 2015 vs 4.2% in 2013. So far, no concrete solution suggested, besides a general statement in the most recent FR.
 
"Significant investment is being made in IT infrastructure and systems, as well as supply chain, to improve efficiency and to increase productivity"

(not vested)

I am wondering the coming restrictions on cigarettes sales will affect 7-11 sales.
Cigarettes sales seems to be a significant contributor to sales. I am guessing only

(16-03-2016, 01:01 PM)opmi Wrote: I am wondering the coming restrictions on cigarettes sales will affect 7-11 sales.
Cigarettes sales seems to be a significant contributor to sales. I am guessing only

Tobacco sales contribute to almost 35% of their overall sales for 7-11, followed by alcohol (which might have fallen) and then drinks and snacks.For tobacco, their premium segment is declining extremely fast, which means they are not earning healthy margin as a whole, depending on the low end segment for growth, but at the expense of profitability. If you ask me whether the ban will impact them? I will say it cuts both ways, with less visibility at the tobacco side, customer will go to convenience store for purchase since it's guarantee and certified vs a mom and pop store, where the mgt of product will not be there. It also give them leverage at the expense of suppliers, i heard many things internally are sponsored by the alcohol and tobacco suppliers. Who do you think sponsor that cigarette dispensing machine you see on social media? However, the lack of visibility will push the whole cateogory towards low end range, which isn't healthy.

I will keep my hands off DFI for the time being, until they have a clear strategy and action plan on how to counter e-commerce, bringing value to customer in the face of stagnating income growth for people like me in middle class

(16-03-2016, 01:01 PM)opmi Wrote: I am wondering the coming restrictions on cigarettes sales will affect 7-11 sales.
Cigarettes sales seems to be a significant contributor to sales. I am guessing only

Since you mentioned about cigarette sales, I'm just curious - anyone knows the profit margin of a pack of cigarette? The tobacco license is approx $300 per year and the tobacco (to my understanding) is a fixed price. Is it really that lucrative?

(16-03-2016, 11:55 PM)pantoo Wrote:

(16-03-2016, 01:01 PM)opmi Wrote: I am wondering the coming restrictions on cigarettes sales will affect 7-11 sales.
Cigarettes sales seems to be a significant contributor to sales. I am guessing only

Since you mentioned about cigarette sales, I'm just curious - anyone knows the profit margin of a pack of cigarette? The tobacco license is approx $300 per year and the tobacco (to my understanding) is a fixed price. Is it really that lucrative?

For a company like Dairy Farm.... it's probably inconsequential.... 7/11 is just a subset of SEA and cigarette sales is a subset of 7/11.

Shouldn't the focus be on competitors like Aldi? They've recently ventured into Australia... A guess will be SEA's next?

(16-03-2016, 11:55 PM)Hpantoo Wrote:

(16-03-2016, 01:01 PM)opmi Wrote: I am wondering the coming restrictions on cigarettes sales will affect 7-11 sales.
Cigarettes sales seems to be a significant contributor to sales. I am guessing only

Since you mentioned about cigarette sales, I'm just curious - anyone knows the profit margin of a pack of cigarette? The tobacco license is approx $300 per year and the tobacco (to my understanding) is a fixed price. Is it really that lucrative?

Last I know of is 10% of retail price.That the reason why your neighborhood store is willing to cut-throat compare to the big boys like ntuc cheers or 7-11.Talk to your friendly neighborhood store uncles/aunties they should be willing to indulge this little info.