Dairy Farm's earnings seen to drop 11% to US$436m

Blame it on higher costs.

According to DBS, it revises its earnings for FY13F by -11%.to US$436m.

Here's more:

We see higher costs as fundamental to DFI’s operations and as such expect lower margins to persist. On the back of higher costs and lower margin expectations, we moderate our FY14F/FY15F earnings by 15% each.

Earnings likely to be soft for FY13F. We believe earnings will likely be soft for FY13F, and lower margins from higher labour, utility expenses, as well as lower gross profit could impact growth for FY13F.

We are hence moderating our earnings for FY13F/FY14F, by cutting each by 15%, in anticipation of lower earnings going forward.

Margins could disappoint. We believe its Food business is likely to record lower profits in FY13F despite overall sales growth as it lowered margins to drive sales growth, while cost increases were seen in labour and utility. There was translation impact from the weaker Malaysian ringgit and Indonesian rupiah as well.