Dairy Farm rejoices while Carrefour Malaysia spirals down

A competitor may buy Carrefour for US$300m but Dairy Farm shrugs it off.

According to CIMB, talk of French hypermarket retailer Carrefour withdrawing from ASEAN has escalated. Japan-based Aeon is said to be in talks to buy Carrefour's Malaysian operations. Carrefour’s withdrawal could strengthen Dairy Farm’s competitive positioning.

Here's more from CIMB:

A concrete turnaround of Dairy Farm’s 7-Eleven South China operations and easing competition are potential share-price catalysts.

Reuters has reported that Aeon is in talks to buy Carrefour's Malaysian hypermarket business for US$300m. Carrefour's Malaysian business generated US$525m sales in 2011 (vs. Dairy Farm’s estimated US$1.6bn Malaysian sales and Aeon Group’s US$1bn).

Aeon is a department-store operator in Japan which also runs Jusco supermarkets in Malaysia. It does not operate hypermarkets. Data gleaned from Nielsen suggests that Jusco does not have a wide network of stores in Malaysia. Reports also suggest that Carrefour could withdraw from Indonesia.

The news is positive for Dairy Farm. While Carrefour Malaysia could be replaced by Aeon, a new entrant, we note that running hypermarkets is not Aeon's forte. We think Dairy Farm's competitive positioning could be strengthened by the withdrawal of an incumbent.

Crucially, Dairy Farm's apparent non-interest towards Carrefour Malaysia could signal that it is saving ammunition to bid for Carrefour’s Indonesian business. Having the largest network, Carrefour is the leading hypermarket retailer in Indonesia. The other two are Giant (under Dairy Farm) and Hypermart (under Matahari).

We believe only Dairy Farm has the war chest to acquire Carrefour Indonesia. The other player which could be eyeing Carrefour Indonesia is Korean retailer, Lotte Department Store.