Is there still hope for Dairy Farm?

Its squeezed valuations might eventually recover.

Dairy Farm’s share price has not performed well in recent months, with its unit price slipping 21% since early August. However, DBS analysts believe that there’s still hope for Dairy Farm’s under valued stock.

“We find value in DFI’s core business after stripping out the value of DFI’s 20% stake in Yonghui’s shares and net debt. Our analysis suggests that the current share price is now pricing DFI’s core business at 18x FY16F PE, a deep discount to peer and historical average PE multiple of 25x,” DBS said in a report.

Dairy Farm’s growth is supported by store expansion and better efficiencies, DBS said. Among the initiatives to support growth are more Mannings stores in Yonghui, more focus on private labels, e-commerce, fresh/ready to eat food, improvement in supply chain infrastructure and inventory management.

“We believe the company's share price correction is overdone for two broad reasons: 1) There is value in DFI’s core business. Barring unforeseen shocks, we do not see significant cuts in earnings despite the recent share price correction,” said the report.

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