SINGAPORE (March 6): DBS Vickers Securities and RHB Research are maintaining their “buy” calls on Dairy Farm International Holdings (DFI) at target prices of US$9.96 ($14) and US$10 respectively after the group posted positive FY16 results which came in line or exceeded the research houses’ expectations.   

(See also: Dairy Farm full-year earnings up 11% to US$469 mil)

Both brokerages continue to remain positive on the stock’s growth and earnings prospects ahead on improving margins.

In a report on Monday, DBS analysts Alfie Yeo and Andy Sim say they continue to be positive on DFI based on expectations of further cost efficiencies from enhanced operational processes through distribution centres, procurement and IT systems.

They are also projecting FY17F dividend per share (DPS) to increase based on an estimated 60-65% payout ratio, which will lead to a slightly higher dividend yield.

“We believe that earnings would have to disappoint significantly to derail our positive bias on the stock. Nonetheless, our earnings forecast is conservative,” note Yeo and Sim.

Separately, RHB’s research team highlights that while DFI’s margins are heading in the right direction, the group still has “significant room to catch up with regional peers” – although its latest 2H16 margin improvements validates the research house’s central investment thesis of structural margin improvement opportunities in the supermarkets division.

“Going forward, we believe there is much more growth to come; including faster growth in China where its 7-Eleven in Guangdong has just gone past 800 stores, private label product penetration where management has invested heavily, bulk and direct sourcing as a group and growth in promising new markets such as Philippines and Vietnam,” comments the team.

The analysts also agree with the management’s aim of pushing for greater product range and quality across DFI’s businesses, and in fact view it as a “necessary move” as RHB expects rising income levels and growing e-commerce activities in Asia to increase consumer demand for product choices.

“We are encouraged that growth was achieved against a weak consumer sentiment in most of its markets, rental pressures in its core Hong Kong market, and weaker regional currencies. We believe the company is still in the early phase of a giant operational improvement upcycle, initiated by the major corporate reorganisation in 2014,” concludes RHB.

As at 12:20pm, shares of DFI are trading 0.5% higher at US$8.55.