SINGAPORE (Jan 9): RHB Research has maintained its “buy” recommendation for Dairy Farm International as the supermarket operator continues to invest in the fresh food distribution business.

RHB’s Singapore research team noted that the management has been expanding its operations in Singapore and Malaysia and in China through Yonghui Superstores. Given the group’s lower than average margins compared with its peers, the brokerage believes that could be upside in the longer term.

At the same time, the group made country-level management changes in Singapore, Indonesia and China last year. Those were the countries that had been underperforming.

“We believe a fresh start, rationalisation of unprofitable stores, and a focus on implementing a top-down strategy may bear fruit and lead to higher profitability in 2017,” said the brokerage, adding that the group may be able to expand its mannings and 7-eleven franchises in China.

To be sure, Dairy Farm remains a strong generator of cash and RHB believes its remains undervalued. For FY17, Dairy Farm is expected to offer a dividend yield of 3.3%.

The brokerage has a target price of $8.60 for the stock, which represents 21 times forward earnings, and is still at a discount to Dairy Farm’s peers.

Shares in Dairy Farm opened at US$7.33 on Monday.