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Dairy Farm International Scheduled to Join STI on 24 September

SGX Research
  • Dairy Farm International is scheduled to join the STI effective Monday 24 September, replacing StarHub. On inclusion the leading pan-Asian retailer will be one of five STI constituents that are quoted and traded in USD.
  • Dairy Farm generated a total return of 24.2% in the first 8 months of 2018 (in SGD terms), with institutional net buying totaling S$32 million. The Group reported earnings of US$225 million for its 1HFY18 (ended 30 June), up 6% from its 1HFY17 restated earnings on higher consolidated sales.
  • Dairy Farm is expected to make up between 1.0% and 1.5% of the STI weights, based on free-float information and STI weights as of 29 June 2018. The Consumer Goods Industry will then have four stocks in the STI (incl. Thai Bev, Wilmar & GAR) representing between 6% and 7% of the STI weights.

The Straits Times Index (STI) is a highly diversified benchmark for the Singapore stock market consisting of 30 of its largest capitalised and most actively traded stocks. In the 2018 year through to the 6 September close, the STI has generated a 4.5% decline in total return which has followed a 22.0% total return in 2017.

Results of the September STI review were published after the market close today and can be foundhere.

Dairy Farm International (“Dairy Farm”) is scheduled to join the STI effective the open of trading on Monday 24 September, replacing Starhub.

The inclusion of Dairy Farm means the ICB Consumer Goods Sector will now have four representative stocks representing between 6% and 7% of the STI weights. The indicative Sector weights, based on the relative weightings of 29 June 2018 (click here) are illustrated below.

Indicative STI Industry Weights (with inclusion of Dairy Farm)

chart1

Source: FTSE Russell (www.ftse.com/products/indices/SGX-ST), SGX My Gateway, SGX StockFacts

The other three stocks representing Consumer Goods are Thai Beverage, Wilmar International and Golden Agri-Resources. Note that the three Banks make up approximately 41 percentage points of the indicative weight of the Financials Industry shown above at 58.1%. The remaining 17 percentage points are made up of Real Estate Management and Development stocks, Real Estate Investment Trusts (REITs) and Diversified Financial Services.

Potential New STI Weights 

Based on STI weightings on 29 June 2018, Starhub had previously maintained a 0.3% weight in the STI whereas based on its 29 June free-float capitalisation, Dairy Farm would have maintained a 1.2% weight in the Index.

However, since the end of the June quarter, the share price of Dairy Farm has gained 2.2% in SGD terms, compared to the STI declining 3.7% in price. Without taking into considerations the performances of all STI constituents, the recent relative performance of Dairy Farm indicates that its weight in the STI could be marginally higher than 1.2%.

Together, Jardine Matheson Holdings, Hongkong Land Holdings, Jardine Strategic Holdings, Jardine Cycle & Carriage and Dairy Farm would maintain an indicative STI weight of 15.4%.  For an August Market Update on the Jardine Companies click here.

The potential new weightings based on publically available weights dating back to the 29 June 2018 are tabled below.

Source: FTSE Russell (www.ftse.com/products/indices/SGX-ST), SGX My Gateway, SGX StockFacts.  Note weights above are only indicative and based on relative weightings on 29 June 2018. Industry Classification Benchmark (ICB) weightings for the 10 biggest constituents are available from FTSE Russell here.

Dairy Farm

Dairy Farm is a leading pan-Asian retailer. As of the end of June 2018, the Group and its associates in addition to joint ventures operated over 7,400 outlets and employed over 200,000 people. The Group had total annual sales in 2017 exceeding US$21 billion. More recently the Group reported earnings of US$225 million for its 1HFY18 (ended 30 June), up 6% from its 1HFY17 restated earnings on higher consolidated sales.

The Group operates under a number of well-known brands across four divisions. The principal brands are:

Food

  • Supermarkets/Hypermarkets – Wellcome in Hong Kong, the Philippines and Taiwan; Yonghui in mainland China; Cold Storage in Malaysia and Singapore; Giant in Brunei, Indonesia, Malaysia and Singapore; Hero in Indonesia; and Rustan’s and Shopwise in the Philippines.
  • Convenience stores – 7-Eleven in Hong Kong, Macau, Singapore and Southern China.

Health and Beauty

  • Mannings in Greater China; Guardian in Brunei, Cambodia, Indonesia, Malaysia, Singapore and Vietnam; and Rose Pharmacy in the Philippines.

Home Furnishings

  • IKEA in Hong Kong, Indonesia, Macau and Taiwan.

Restaurants

  • Maxim’s in Cambodia, mainland China, Hong Kong, Macau, Singapore, Thailand and Vietnam (directly and via various joint ventures or franchises).

Dairy Farm generated a total return of 24.2% in the first 8 months of 2018 (in SGD terms), with institutional net buying totaling S$32 million.  On joining the STI, Dairy Farm will be one of five constituents quoted and traded in US Dollars. In the 2018 year-to-date the US Dollar Index has appreciated 3.4% to current levels near 95.100.

STI Reserve List 

The STI is a free float adjusted market capitalisation weighted index representing the performance of the largest Singapore stocks which pass the size, free float, and liquidity screens.

The five stocks of the STI Reserve List effective 24 September are scheduled to all be REITs – Suntec REIT, Mapletree Commercial Trust, Keppel REIT, Mapletree Logistics Trust, Mapletree Industrial Trust.

The STI Reserve List is used in the event that one or more of the STI constituents are deleted during the period up to the next quarterly review. As detailed in the STI Ground Rules (click here) when a company is going to be removed from the STI the vacancy will be filled by selecting the highest ranking security by full market value in the Reserve List as at the close of the index calculation two days prior to the deletion.

There are further qualifications for the framework of the STI Reserve List in the case as Mergers, Restructuring and Complex Takeovers as described in Section 6.4 of the STI Ground rules.