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Broker's take: RHB upgrades Dairy Farm to 'buy' but lowers target price to US$8.25

RHB Research Institute has upgraded its call on bluechip index constituent Dairy Farm International to "buy", but decreased its target price from US$8.64 to US$8.25.

Its analyst, Juliana Cai, believes that Dairy Farm's stock price has reached a trough, presenting an opportunity for "long-term investors to accumulate the stock at its low". As as 3.20pm, Dairy Farm shares were trading at US$7.63, up US$0.22 or 3.0 per cent.

But she noted that even though "there is no fast turnaround for its supermarket/hypermarket division", the company is working to "rightsize the business as well as improve prices, offerings and presentation".

To tackle legacy issues facing its food business, Dairy Farm took US$453 million in business restructuring charges during Q4 FY2018. The restructuring contributed to Dairy Farm shares facing a selldown during that quarter. In the year up to March 2019, Dairy Farm's shares have dropped 19 per cent.

"We believe near-term growth could still be driven by higher contributions from its health and beauty division and strong associates, while home furnishing is likely to see higher revenue offset by pre-opening costs for new stores," RHB said.

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RHB expects Dairy Farm's core profit after tax and minority interests to grow at a compound annual growth rate of 11 per cent over the next three years.



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