Dairy Farm's 2H13 earnings predicted to dip 2%

Here are the possible culprits.

According to Macquarie Equities Research, it expects a soft 2H13 for Dairy Farm and predicts earnings to decline by 2% YoY, consistent with DFI’s guidance of “marginally lower earnings”.

Here's more:

Probability of a surprise is low but nonetheless, we highlight some up/downside risks:

 Upside risk: Super/hypermarket (47% of 2013E op. profit) retail sales growth in DFI’s key markets has slowed from 8% YoY in 1H to 6% in 2H. We are pencilling in a conservative 4% sales growth rate for DFI, which would be the weakest reading since 1H09.

 Downside risk: H&B (40%). Consumer confidence indices, which somewhat correlate to DFI’s H&B sales growth have declined 7% sequentially in 2H13 dragged by a poor 4Q13 reading in Malaysia. We are calling for H&B sales growth to slow to 10% from 11% sequentially.

 … that said, current valuations offer a compelling entry point. DFI is a cash generative, high ROIC (60-65%) business. It is currently trading at 14.4x 14E EV/EBITDA, backed by a strong 17% medium term FCF CAGR (13-18E). Its net cash position also offers scope for special dividends.

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