SINGAPORE (Jan 12): Dairy Farm International’s core business in Hong Kong could be set for a recovery, and for that, RHB Research has maintained its “buy” recommendation on the stock. Hong Kong contributes between 40% and 45% to Dairy Farm’s overall group revenue. 

In 2016, retail sales in Hong Kong was impacted by lower spending by Mainland Chinese tourists, but is likely to improve after mainland Chinese tourist arrivals ticked up from November 2016.

“We believe this bodes well for its business at Mannings in 2017,” said the RHB Singapore research team in a note on Thursday.

As it stands, the group’s profitability looks set to improve. In 2016, the group had been actively rationalising its convenience store business, by closing its Starmart business in Indonesia and its weaker performing 7-Eleven stores in Singapore, and by making country management changes in China.

In its supermarket business, Dairy Farm is continuing its push for higher fresh food sales — which command higher margins — in developed cities where wet markets are being phased out. Coupled with the group’s efforts in increasing its direct and bulk buying and improving efficiencies through the investment in IT infrastructure, margins at Dairy Farm’s largest segment has already begun to improve in 3QFY16 and is expected to continue.

Furthermore, the partnership with Yonghui Superstores could also benefit Dairy Farm in attaining better store locations and other sourcing advantages.

Shares in Dairy Farm were trading at US$7.40 on Thursday morning.