Virus crisis to hit Dairy Farm's North Asia earnings

Restaurant earnings fell 30% during the SARS outbreak in 2003.

The COVID-19 outbreak is expected to have an impact on Dairy Farm’s North Asia earnings and cloud near-term convenience and restaurant earnings, according to a report by CGS-CIMB.

In 2003, during the SARS outbreak, restaurant earnings before interest and tax (EBIT) fell 30% YoY, whilst convenience store EBIT shrank 10% YoY as footfall fell in both formats.

The firm’s food EBIT is estimated to have grown 50% YoY in 2019 as its profitability for SEA improved with the ongoing restructuring. However, earnings for the convenience store segment fell about 6.2% YoY due to pre-opening costs for its new 7- Eleven stores in Guangdong.

“We are heartened that DFI’s multi-year transformation programme is bearing fruit in its SEA food business; however, the near-term uncertainties in Hong Kong, DFI’s main earnings contributor over the past three years, are still too large to ignore,” CGS-CIMB analyst Cezzane See said.

Meanwhile, its health and beauty (H&B) segment fell 10.1% YoY as the company saw protest pressures bring down its H2 2019 EBIT down 29% YoY, whilst home & furnishings (H&F) segment EBIT crashed 33.2% YoY on higher pre-operating costs for upcoming stores.

As a whole, the underlying operating profit of Dairy Farm’s subsidiaries fell 14% YoY to $605.33m (US$437m) in 2019, primarily due to social unrest in Hong Kong which disrupted trading in the latter half of the year.