Will underperforming Dairy Farm ever recover?

Profitability is at a six-year low.

Retail giant Dairy Farm has been underperforming in recent years, battered by weak sales, soft consumer sentiment and smaller market share. As a result, its profitability and share price has taken a beating, with the stock now hovering at its lowest point since 2010.

Despite Dairy Farm’s poor showing, RHB Research remains bullish on the retailer’s growth story, noting that the company has much room for margin improvement in the medium term.

“We believe there is much room to improve on gross margin in its supermarket/hypermarket segment, as the company reiterated its commitment to increase direct sourcing,” RHB said.

RHB Research is also positive improving sales of the group's corporate brands, and believes that country management changes will allow Dairy Farm to revive its presence in its key markets.

“Current valuations are at their lowest point since 2010. This is perhaps reflective of weak profits, which are also at its lowest level in this period. However, we view Dairy Farm as a deeply-entrenched retail company, which has a strong potential to turn around its stumbling performances in the past few years.