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Tug-Of-Fools: Dairy Farm International Holdings – The Bull Argument
Corporate Digest | 13 November 2014
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Hey there, my name is Chin Hui Leong, and this is my bull case for Dairy Farm International Holdings.

If you are up and about in Singapore, it won’t be long before you walk past a retail outlet owned by Dairy Farm. The pan-Asian retailer is the owner of stores such as Guardian, Cold Storage, Giant hypermarket, and 7-Eleven in Singapore. But Dairy Farm is much more than that. The company boasts close to 6,000 retail outlets in 11 territories around Asia. This includes stakes in outlets such as Maxim, Mannings, and even the popular Swedish furniture store IKEA.

Beyond this, I would like to highlight three points to support my thesis.

Long-Term Track Record
Dairy Farm has been building up its retail store base over the past decade. Its retail outlets can be grouped into six major categories. Below is a summary of the increase in the company’s store count by category from 2004 to 2013. This broad-based increase has seen Dairy Farm’s total retail outlet count more than double from 2,874 outlets in 2004 to 5,889 outlets in 2013.

Retail Outlet Count

Source: Company Annual Reports

The increase in store count has certainly benefited the company as it has led to strong growth in sales, profit, and free cash flow. In the 10 years preceding 2013, revenue for Dairy Farm had increased by 162 percent, with net income and free cash-flow following suit with 99 percent and 86 percent increases respectively.

Revenue Net Income And FCF

Source: Capital IQ

All these elements make up for an impressive decade-long track record for Dairy Farm which might continue into the future.

Cash Flow Funded Growth
The presence of free cash flow and a strengthening balance sheet over the years indicates that Dairy Farm has been able to fund its growth using its own generated profits. This means that Dairy Farm does not have to rely heavily on additional funding in order to grow further. From the graph below, we can see that the company’s net cash balance has steadily grown over the past seven years.

Cash And Equivalents, Debt

Source: Company Annual Reports

The strong balance sheet and reliable cash flow growth has enabled Dairy Farm to pay out a steadily increasing dividend. The company has rewarded the individual investor with growing dividends throughout the decade – Dairy Farm’s pay-out had increased from US$0.07 in 2004 to US$0.23 in 2013. These dividends can make a significant difference to an investor’s returns. Although Dairy Farm’s growth in share price alone has been pretty remarkable at 447 percent over the past decade (from the start of 2004 till 10 November 2014), when gains from reinvested dividends are included, the retailer’s total returns jumped to 714 percent.

As of the end of 2013, Dairy Farm had a net cash position of $620 million and a trailing free cash flow of $386 million.

Addressable Market – Can We Have Some More, Please?

Despite the impressive historical rise in revenue and profits, Dairy Farm needs room to grow in the future if it is to be a winning share.

On that note, here’re some figures to mull over. Singapore and Hong Kong currently houses more than half of the 5,889 retail outlets for Dairy Farm. At the same time, China alone has at least nine cities which are larger than Hong Kong in terms of population size. In 2013, Dairy Farm had only 972 retail outlets in China, so there is space for the company to grow further in the country.

Furthermore, according to Euromonitor International, China and Indonesia are expected to generate more than a trillion US dollars each in additional sales through convenience stores in 2014. Dairy Farm has a strong convenience store presence in both countries.

Another report from the Economist suggests that rapid urbanisation and a growing middle class is expected to drive sales for the overall retail environment in Asia. The research outfit estimates that Asia will be the home to 1.7 billion middle class citizens by the year 2020.

Foolish Summary
In summary, this is what I see with Dairy Farm: It has a stellar track record of growing in Asia and has a long runway ahead. These two ingredients when put together has the makings of a long-term market beater which is worth considering. I would tip my Foolish hat to Dairy Farm.

Now, Foolish investors will know that it’s not a straight ride up for the share price for all companies, and that includes Dairy Farm. To this, I will let my counterpart lay out the bear thesis.

The Motley Fool ( offers stock market and investing information, offering people suggestions on how to take control of their money and make better financial decisions.

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Dairy Farm Int'l Hldgs  5.830 -0.08 -1.35%   
Business: Asian retail co that operates supermarkets, convenience stores & others. [FY18 Turnover] Food (70.3%), health & beauty (14.6%), restaurants (11.8%), home furnishings (3.3%).

Insight: Feb-19, FY18 net profit plunged 77% to US$92m due ... Read More

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