SINGAPORE (Mar 26): CIMB Research is keeping its “hold” call on Dairy Farm International with an unchanged price target of US$8.40 pending further details on the gearing up of its business in the Philippines.

To recap, DFI is planning to acquire an 18.25% stake in Philippines-based Robinsons Retail Holdings Inc (RRHI) in a deal worth close to US$520 million ($684 million).

The deal will see DFI trade its 100% stake in Rustans Supercenters (RSCI) for a 12.15% stake in RRHI, and fork out an additional US$174 million for another 6.1% stake in Philippines Stock Exchange-listed group.

The partnership will see DFI and RRHI working together to build a leading food retail business in the Philippines.

See: Dairy Farm partners Robinsons to build food retail business in The Philippines

“We are positive that the deal could add scale for DFI’s Philippines business, given RRHI’s size, says CIMB lead analyst Cezzane See.

But she notes that the impact on DFI’s bottom-line will not be massive.

“The 18.25% stake could translate to close to US$20-22 million to DFI’s associate income, but the additional associate income accounts for only close to 3-4% of DFI’s estimated CY18-20F PBT (profit before tax) of US$599-657 million,” See says.

Meanwhile, the analyst believes that DFI’s Southeast Asia (SEA) operations still needs time to improve. “Especially for DFI’s weak SEA super/hypermarket division, we believe meaningful improvements will take time to bear fruit,” she says.

However, she believes the change of leadership, with new CEO Ian McLeod joining in September last year, could “usher in positive winds of change.”

 A member of the Jardine group, DFI saw its FY17 earnings fall 14% to US$404 million for the full year ended December.

See: Dairy Farm's FY17 earnings fall 14% to US$404 mil on business change costs

“After a disappointing year in 2017 for our Food businesses in Southeast Asia, actions are being taken to improve their long-term performance,” chairman Ben Keswick said in a statement accompanying DFI’s FY17 results announcement on Mar 8.

As at 12.04pm, shares of DFI are trading 7 cents higher at US$7.84.