Dairy Farm International (DFI) is a net cash company with a track record of adroitly navigating economic downturns. However, DFI's earnings growth in its principal markets in Asia is likely to slow down amid the debt woes of European countries, slower GDP growth in China and uncertainty in economic recovery in the US, Hence, we lower our net profit estimates by nearly 3-4% for 2012-13ii. We now expect 10-11% revenue growth and 8-11% net profit growth in 2012-13ii. We increase our target price from US$9.20 to US$10.11 as we roll our valuation year to 2012ii. We retain ADD.

Market leader across countries: DFI is a net cash company run by a management with a credible track record; the company has delivered consistent and steady earnings growth across business cycles. Despite the

severe acute respiratory syndrome (SARS) and global financial crises, DFI's net profit (core) registered a Cagr of 18% over 2003-10. During this period, its dividend per share delivered 22% Cagr and its payout ratio increased from 51% of core profit to 59% of core profit. During the 2008-10 financial crisis, its sales increased 9-14% YoY and EBITDA increased 10-18% YoY, underscoring the resilience of its business. However, a deceleration in sales growth was seen during each downturn.

Earnings estimates revised downwards: We lower our sales growth estimates by 2-3% over 2012-13ii and net profit estimates by nearly 3-4%. We now expect 10-11% revenue growth and 8-11% net profit growth over 2012-13ii. In 1H2011, a weaker USD versus Asian currencies boosted DFI's profit. But in 2H2011ii, USD has appreciated 2-5% versus major Asian currencies. Hence, profit growth will be slower in 2H2011. We expect DFI to deliver 21% YoY net profit growth and 14% YoY sales growth in 2011ii, slightly slower than that in 1H2011. 

Target price increased to US$10.11 from US$9.20: While we lower our net profit estimates, we raise our target price from US$9.20 to US$10.11 as we roll our valuation year to 2012ii. Our earlier target price of US$9.20 was based on 16.4x 2011ii EV/EBITDA. Our new target price is based on 16.4x 2012ii EV/EBITDA. (Read full report)