Diversified retailer with a dominant consumer franchise

Dairy Farm, a leading pan-Asian retailing group, is an example of a dominant consumer franchise we like to own. As part of the Jardine Group, it has a long history of family ownership and stewardship (130 years).

With more than 10,000 stores across 11 countries and a broad collection of retail franchises across much of Asia (including drug stores, supermarkets, 7-11 convenience stores, IKEA and Maxim’s – a joint venture catering and restaurants business), we consider Dairy Farm to be a high-quality business with plenty of long-term growth potential.

While the company has struggled in recent years, with its supermarkets facing greater competition from e-commerce, and Hong Kong and Macau facing short-term headwinds due to lockdowns and political issues, we believe Dairy Farm should be able to weather the storm. The group is undergoing a multi-year transformation under CEO Ian McLeod who joined in 2017, and profitability in the supermarkets business has since improved. Additionally, Indonesia, Vietnam, Cambodia and the Philippines have attractive demographics with good potential to become future growth drivers. With the implementation of a strategic plan, leadership changes and the introduction of centralised multi-brand buying, property negotiation and processing, we believe the group should continue to improve margins and grow the business in the long run.

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Profitability (operating margins)

Source: FactSet, Company reports and FSSA Investment Managers, as at 30 June 2022.

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