Dairy Farm International Holdings Ltd (DFI SP) is a pan-Asian retailer run by Jardine Matheson, the family holding company of Sir Henry Keswick.
The company was founded as a dairy farm in Hong Kong in 1886 by Scotsman Sir Patrick Mason and a group of five Hong Kong businessmen. It branched out into dairy retail, and later added supermarkets via the acquisition of the Wellcome grocery chain. Henry Keswick's Jardine Matheson acquired Dairy Farm and later relisted it in 1986. Since then, it has acquired retail operations across Taiwan, Malaysia, Singapore, Indonesia as well as China.
Today, the company's primary focus is supermarkets, restaurants and convenience stores, representing almost 50% of operating profit. Another 40% comes from health & beauty stores, or what Westerners would normally consider as pharmacies. The remaining portion of revenues comes from home furnishing stores. North Asia (primarily Mainland China and Hong Kong) represents roughly 2/3 of profits, with Southeast Asian countries such as Singapore, Malaysia, Philippines and Indonesia representing the rest.
There are a few underlying growth drivers. First, modern retail formats are still rare in some Asian countries. Second, demographics are excellent in several Southeast Asian countries. Third, the region has become richer over time and is likely to continue to close the gap with Western countries in terms of income per capita as Asians tend to be well-educated and hard-working. Fourth, health & beauty retail store spend per capita is still very low in countries such as China, Malaysia and the Philippines. Finally, the penetration of private label food products in grocery stores are very low in certain countries, including in China.
The stock has underperformed over the past five years. A strong US Dollar made key Asian currencies drop 4% to 44% since 2014. Since Dairy Farm reports (and trades) in US Dollar, that has a direct impact on perceived growth rates. The Southeast Asian supermarket segment has been particularly weak. Singapore tightened visa restrictions, causing many expats to leave the country. Dairy Farm's Singaporean supermarkets occupy the high-end niche and were hit accordingly. The ban on late-night sales of alcohol in 2015 also hit the city-state's overall retail consumption. Lower-end stores such as Sheng Siong also took market share. Labour cost inflation has been very high in Indonesia due to minimum wage hikes under Jokowi. In Malaysia, we saw a large 2015 hike of GST and much higher cigarette taxes. These factors all played a part.
In addition, Dairy Farm's pharmacies suffered from lower Chinese tourism since the anti-government protests broke out in mid-2019. Local customers in Hong Kong also turned against Maxim's establishments after the founder's daughter criticised the protesters in 2019. And in 2020, foot traffic across the company's pharmacies, restaurants, convenience stores and home furnishing stores dropped to very low levels.
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