DFI Retail Group

[jaco]

Does Alibaba interest in SunArt makes Dairy Farm stake in Yonghui more valuable? Something to ponder about in regards to the jostling for fresh food retailing supremacy in China.

Why would Tencent want to buy a grocer? They have no operations in retail or e-commerce related to goods.

[Big Toe]

It makes perfect sense. It is highly probable that even with best market conditions, red mart is not even close to profitable.
What this means that there is no way an online grocer is able to be as profitable or sustainable as a traditional one. It is one of the rare few business that brick is stronger.

The tradition model of retailing at a nearby supermarket is still a better option of running a grocery/supermarket business despite the costs involved in it. What this means is that the online giants would probably go the proven traditional route to expand their ecosystem and reach. Also cross selling other products and services at a physical stores has its advantages when the online market place becomes too crowded/messy.

So Yonghui stake can be more valuable depending who the buyer is and the intention of the purchase. It probably wont be a straightforward answer.

[Raks]

Tencent + grocer, why not? IT can improve any industry or company; so long as the company is not just doing for the sake of doing.
Tencent had Yonghui stake for several years.
https://www.yicaiglobal.com/news/drones-...er-species
Drones, anyone? Online orders can be immediately attended-to and delivered.

https://www.cnbc.com/2018/08/30/inside-h...-more.html
I was very impressed by Hema and other China online grocers. They merged online - offline in one place. Imagine an NTUC Finest where you can physically visit, scan what you want, and pay with your phone and the product will be delivered to you. You can do pure online buying if you want to. You can also do a hand-carry - still scan and pay with phone.

[Choon]

It seems a winding up application by a Yonghui's investee company which Yonghui owns 32%.
Winding up due to inability to pay suppliers. Net liabilities of ~RMB100M on balance sheet.
Not a big deficit amount. Surprised that Yonghui is not lending financial support to this investee company.

Yonghui's share price has slid in recent days, perhaps influenced by this development.
While Dairy Farm share price has rose in recent days, the market perhaps unaware.

One of the risks of investing in a company with a sprawling empire across Asia. Not only Dairy Farm but also many other GLCs. How well do investors know of a GLC's smaller businesses in other countries, especially when the corporate announcements are in Mandarin or Bahasa.

永辉超市股份有限公司（以下简称“公司”或“本公司”）近日接到参股公司上
海上蔬永辉生鲜食品有限公司（以下简称 “上蔬永辉”或“申请人”）的通知，其
收到《民事裁定书》 【（2020）沪 03 破 359 号】，上海市第三中级人民法院裁定
受理上蔬永辉的破产清算申请。

...公司现有在职职工七百余名；因拖欠供应
商货款引发多起诉讼，已经判决或调解的供应商诉讼 31 起，涉及诉讼标的总计
28,444,651.71 元；未结诉讼 36 起，涉及标的金额 39,466,424.45 元；涉强制执行
案件 8 起。申请人已不能清偿到期债务并且明显缺乏清偿能力。

公司账面资产总计
733,281,147.63 元，负债总计 858,894,111.50 元，所有者权益-125,612,963.87 元。

[ongweehiang]

A quick update on DairyFarm.

Most of the stuffs are gleaned from the 20204Q report with some commentary and thoughts.

https://www.weightedresearch.com/p/compa...dairy-farm

Follow us on www.weightedresearch.com

[Choon]

In my view:

DF's financial performance has deteriorated and disappointed since 2014. The 69% fall in underlying profit in 1H2021 is a shock. Given that COVID-19 is likely to prolong (due to the more contagious delta variant), earnings would continue to be pressured. In the near-term, the market would likely take a cautious and negative view on DF's prospects; valuation should drop. 

Ian McLeod turned around Coles in Australia. Under his charge, business fundamentals and underlying profitability of DF's grocery retail seems to be on an improving trend. DF however faces many challenges across geographical regions and business segments.

DF’s share of Yonghui’s underlying losses of USD 31M for the six months ended 31st March 2021 points to another new challenge. Amidst rising online competition, how badly would Yonghui be hit. Would DF have to write down its investment in Yonghui in the months or years ahead? Would rising online competition also start to impact 7-Eleven and Mannings's profitability in China?

The lesson learnt from the deterioration of DF's business fundamentals and the consequent loss in economic value is that the retailing of everyday consumer goods, due to its largely non-differentiated nature, is a highly competitive business. It requires a constant watchful eye on operating standards, low costs, low prices and attunement to changing market forces and consumer preferences.

[ongweehiang]

In my view:

DF's financial performance has deteriorated and disappointed since 2014. The 69% fall in underlying profit in 1H2021 is a shock. Given that COVID-19 is likely to prolong (due to the more contagious delta variant), earnings would continue to be pressured. In the near-term, the market would likely take a cautious and negative view on DF's prospects; valuation should drop. 

Ian McLeod turned around Coles in Australia. Under his charge, business fundamentals and underlying profitability of DF's grocery retail seems to be on an improving trend. DF however faces many challenges across geographical regions and business segments.

DF’s share of Yonghui’s underlying losses of USD 31M for the six months ended 31st March 2021 points to another new challenge. Amidst rising online competition, how badly would Yonghui be hit. Would DF have to write down its investment in Yonghui in the months or years ahead? Would rising online competition also start to impact 7-Eleven and Mannings's profitability in China?

The lesson learnt from the deterioration of DF's business fundamentals and the consequent loss in economic value is that the retailing of everyday consumer goods, due to its largely non-differentiated nature, is a highly competitive business. It requires a constant watchful eye on operating standards, low costs, low prices and attunement to changing market forces and consumer preferences.

Agree, it has been very disappointing. The metric got worse. 

They are still the only pan-Asia retailer operating in multiple countries with multiple brands. Always thought that that is a big advantage (a culture to be able to handle so many brands over so many areas) but it is turning less so. 

I did not expect that Yonghui business would be so badly affected as well. Now Yonghui looks like Giant operation pre-pandemic...

But I think 7-Eleven in China and Maxims are the jewel in their operation but it only constitute 20% of their total revenue...

My latest update on 2022Q results below. 

Company Update: Dairy Farm 2021 2Q

Follow us @ www.weightedresearch.com

[weijian]

The share price of DFI has been on a downward spiral for the last 3 years - from ~9usd (early 2019) to ~3usd (end 2021) - a ~70% destruction of shareholder value.

On hindsight, to recap what happened in the last 3 years to cause this 70% destruction:

2019: HK protests causing Mannings/Maxim to be affected in 2H19. There also seems to be a realization that the SEA grocery business turnarounds by the newly appointed CEO and staff may not be able to respond fast enough to the changes in customer behaviors (demanding value, e-commerce, ever smaller formats)

2020: Covid19 would significantly impact 711, Guardian and Mannings and Maxim . Grocery was around to diversify the impact with a stellar performance. If Grocery goes missing, what is going to happen?

2021: To the dismay of all shareholders, Grocery did go missing with really weak topline/margins 2021 YTD. In absence of Gov grants (that were around in 2020), almost all business segments were off the cliff (with the exception of 711 which did slightly better). The new CEO, in AR18, had espoused on DFI's diversification of different business lines but in 2021, (almost) everything crashed.

HK, is the epicenter of where all the disasters are happening for DFI shareholders. And we know that HK will be defending its Motherland's zero covid policy until at least Xi ascends the throne in Nov2022. There is the added uncertainty of exactly how customer behaviors are changing, post covid-19.

Putting valuations aside, could DFI could be a candidate for a turnaround play? Is there any clear indicators or metrics that one can use to measure the turnaround?

[ongweehiang]

On the operation level, it looks like Giant in Malaysia, Cold Storage in Singapore are making all the right operational move. Optimising their real estate, range of goods and most likely improving basket size.

Maxim is so dominant in Hongkong that they are basically a proxy play for Covid re-opening in Hongkong.

Ikea and 7-Eleven are the only business units that are somewhat stable now.

Yonghui's decline is the next thing they need to deal with...

Manning/Guardian retail footprint is somewhat impaired during the pandemic.

The issue with a turnaround theory for a conglomerate is that

- most of the cylinders must fire at the same time or
- one must do really well while the rest of the operations remain stable.

The way to achieve a clear turnaround is to slim the company down by demerger or sale of non-performing business units to bring about focus in each of the business unit.

I doubt the management has the fortitude to do that.

OWH
www.WeightedResearch.com

[specuvestor]

Nice recap Weijian. Incidentally it is intriguing to me that KS Li's Hutch sold 25% Watson to Temasek in 2014 when DFI was trading around US$10