DFIHY - Dairy Farm International Holdings

[Guest hellsten]

I noticed the Templeton Dragon Fund Common has 20% of its portfolio in Dairy Farm, so I wanted to take a closer look at the company:

http://portfolios.morningstar.com/fund/holdings?t=TDF&region=USA&culture=en-US

 

Dairy Farm International Holdings, a Hong Kong-based

pan-Asian retailer whose core businesses consist of supermarkets, hypermarkets

(department store and grocery market), health and beauty stores, convenience

stores and home furnishing stores

 

Consistent revenue growth and expanding market presence supported Dairy Farm’s stock price.

We believe Asia’s rising personal income and greater consumer demand, combined with the company’s

exposure to the region’s high growth markets, should continue to support revenue and earnings growth.

 

https://www.franklintempleton.com/forms-literature/download/TLTDF-S

 

They are owned by the Jardine Matheson Group:

 

Dairy Farm International Holdings Limited is a retail company in Asia, with a legal base in Bermuda.

 

A member of the Jardine Matheson Group, it is a leading pan-Asian retailer which processes food, wholesales food and personal hygiene products in the Pacific region and in China.

Jardine Strategic, a publicly listed holding company, has an attributable 78% stake in the firm.

It is a listed company on the London Stock Exchange, with secondary listings on the Singapore and Bermuda stock exchanges.

 

At 30th June 2013, the Group and its associates and joint ventures operated over 5,700 outlets; Wellcome/Food World (supermarkets),

50% share of Maxim's Catering (restaurants), Cold Storage (supermarkets), Jasons Market Place/Market Place by Jasons (high end supermarkets),

Shop N Save (discount supermarkets), Giant (hypermarkets), Mannings/Guardian (health and beauty) stores; it also operates 7-Eleven (convenience stores)

throughout the region, and IKEA (home furnishings) stores in Hong Kong and Taiwan.

 

http://en.wikipedia.org/wiki/Dairy_Farm_International_Holdings

 

But the company doesn't look undervalued or cheap:

http://quotes.morningstar.com/stock/s?t=DFIHY&region=USA&culture=en-US

 

Price/Book

11.1

 

Price/Sales

1.4

 

Price/Cash Flow

20.9

 

Owning IKEA in Hong Kong and Taiwan sounds attractive…

 

ROIC and ROE looks good for a retailer:

http://financials.morningstar.com/ratios/r.html?t=DFIHY&region=USA&culture=en-US

 

Does anyone here follow Dairy Farm?

[skanjete]

I'm a shareholder of the Jardine group through Jardine Strategic since 2005, I believe. So I don't own Dairy Farm, but a follow it through the Jardine group wich is majority owner of D.F.. D.F. also have Giant, Hero in Indonesia, Maxim's (restaurants, Hong Kong). I wouldn't own Dairy Farm directly. I think the risk/potential is better balanced through the Jardine group (Matheson or Strategic). Over time, Strategic will be absorbed by Matheson, I think. The Jardines are a Hong Kong conglomerate, like Hutchison Whampoa (Li Ka-Shing) and Swire Group.

 

In 2005 Dairy Farm sold their real estate and leased it back. So they operate a very asset light model.

The Jardines have a real estate division through Hong Kong land. The cash from the sale and lease back went to the parent (Jardine Strategic) who used it to up its stake in Jardine Cycle and Carriage and especially trough JC&C in Astra International.

Astra is a very interesting Indonesian conglomerate itself and proved to be a splendid investment.

 

The Jardine group is quite complex to understand, but has important attractive aspects. Actually, if you dig deeper, it's a real treasure trove (e.g. Schindler in Asia, Mercedes distributor in Hong Kong, Astra has some 50% market share of the Indonesian car market,...) . It's has a controlling family (Keswick family) which also operates the business in a competent western way. Thus it combines a western management (with western governance) with exposure to  Southeast Asian growth.

 

If you want to know more about the group, I can recommend the book "The Thistle and the Jade" written by Maggie Keswick. It covers the complete history of the group from the days of the Scots Jardine and Matheson(1840) and the Hongs , through the world wars to the present days.

[Guest hellsten]

Thank you for the detailed history on Dairy Farm and Jardine. I should look at Jardine Strategic next…

[skanjete]

The main group is actually Jardine Matheson.

Back in 2005 I bought Strategic because it had a greater exposure to Dairy Farm and C&C and less to Jardine Lloyd Thompson and Jardine Pacific.

Besides the dividend was less important with Strategic than with Matheson and since my dividends are being taxed at a higher rate than capital, I chose Strategic.

 

Strategic is a vehicle that has been created some years ago to counter a threatening takeover. That was actually the only function of Strategic. There are important cross holdings between Strategic and Matheson.

The ultimate mothership however is Matheson. So for studying I would start with Matheson.

[skanjete]

Strategic owns about 55% of Matheson and Matheson owns about 83% of Strategic.

Over the years, there have been some tender offers and Matheson is gradually increasing it's stake in Strategic. If I remember correctly, they have to make an offer for the complete company once they reach 85%.

 

The current discount of Strategic to the sum of market value of their listed investment companies is currently about 30-35%, depending on the value you use for Jardine C&C, because Jardine C&C also has a discount of almost 30% to it's listed investments (mainly Astra International (which on its turn also has about 5 listed investments)).

 

In my opinion, this is a discount that's not really justified, because in each case, they have a majority ownership and control the cash flows. 

[Green King]

Strategic owns about 55% of Matheson and Matheson owns about 83% of Strategic.

Over the years, there have been some tender offers and Matheson is gradually increasing it's stake in Strategic. If I remember correctly, they have to make an offer for the complete company once they reach 85%.

 

The current discount of Strategic to the sum of market value of their listed investment companies is currently about 30-35%, depending on the value you use for Jardine C&C, because Jardine C&C also has a discount of almost 30% to it's listed investments (mainly Astra International (which on its turn also has about 5 listed investments)).

 

In my opinion, this is a discount that's not really justified, because in each case, they have a majority ownership and control the cash flows.

 

How do you put a value on Matheson ?  and how are thinking about the IV. I've been looking at it for the last two days for some reason i can't put a number on it.

[skanjete]

Strategic owns about 55% of Matheson and Matheson owns about 83% of Strategic.

Over the years, there have been some tender offers and Matheson is gradually increasing it's stake in Strategic. If I remember correctly, they have to make an offer for the complete company once they reach 85%.

 

The current discount of Strategic to the sum of market value of their listed investment companies is currently about 30-35%, depending on the value you use for Jardine C&C, because Jardine C&C also has a discount of almost 30% to it's listed investments (mainly Astra International (which on its turn also has about 5 listed investments)).

 

In my opinion, this is a discount that's not really justified, because in each case, they have a majority ownership and control the cash flows.

 

How do you put a value on Matheson ?  and how are thinking about the IV. I've been looking at it for the last two days for some reason i can't put a number on it.

 

You're right, it's not straightforward to value. The valuation based on the listed prices of the subsidiaries is a short cut.

To do it thouroughly, one should study all the different subsidiaries and value them seperatedly and then add them back together to come to Strategic and Matheson. Matheson also has some subsidiaries that are not listed, which complicates the matter further.

 

The ultimate calculated value is of course a subjective thing and a matter of discussion. I had some discussions with others who even assigned a premium value to the sum of the parts, instead of a discount, because the Jardines control all the cash flow of the subsidiaries and so in their view the sum of the parts is stronger than any of the individual subsidiaries.

[Green King]

Just a quick look at it (correct me if i have the wrong conclusion)

 

HK land

looks fairly valued for prime real estate given the risk involved. Don't know about the future of HK Hence the commercial economics. 

 

Dairy Farm. 

Looks expansive. The growth expectation and the economics of the the franchise doesn't seems certain.  Competitive advantage doesn't seem external. I mean they are not coming up with a new model like Wal-Mart  or Costco.

[skanjete]

The company magazine/newsletter sheds some light on the range of activities within the Jardines group :

 

http://www.jardines.com/assets/files/NewsAndEvents/thistle/13_vol3.pdf