RHB Investment Research Reports

DFI Retail Group - Showing Better Core Profitability; Maintain BUY

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Publish date: Wed, 15 Jan 2025, 09:36 AM
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  • Maintain BUY, with new USD2.70 TP from USD2.61, 21% upside and c.5% yield. We continue to be positive on DFI Retail Group's earnings recovery expectations and attractive valuation. Core operations have shown profitability improvement, while the recent divestment of Yonghui Superstores Co reduces future earnings risks. We anticipate earnings recovery into FY25F. Dividend yield is decent due to parent company Jardine Matheson Holdings' (JM SP, NR) practice of uplifting dividends back to the group level. The stock currently trades at an attractive 13x FY25F P/E.
  • 3Q24 within expectations, profitability improved. DFI's latest interim management statement saw underlying net profit grow 4% YoY despite a 3% YoY decline in subsidiary sales. While subsidiary profit performance improved, profit could have been better, if not for lower contribution from associates. Like-for-like sales across food, convenience, health & beauty, and home furnishing divisions declined, mainly due to summer outbound travel by consumers and sales mix changes for home furnishing. However, due to improved cost controls and sales mix, subsidiaries turned in better margins and profitability. There was an overall loss reduction from associates, which helped to lift net profit even though Maxim's reported lower revenue and profit, with Robinson's Retail reporting flattish revenue and profit. DFI's overall profit continues to be within expectations, even though revenue was affected by weaker sales.
  • Raise TP and FY24F earnings by 3% each. On the back of better core profitability, DFI has updated it earnings guidance from USD180-220m previously. While it has maintained its higher end guidance of USD220m, DFI has raised its lower end earnings guidance from USD180m to USD190m. We view this as more positive at least from the lower end and have accordingly raised our FY24F earnings by 3%. We attribute the slight uplift to our earnings forecast in reflection of implementing its strategy to grow market share across all formats, improve operating efficiency, expand omnichannel presence and accelerate monetisation initiatives. These result in a slightly higher earnings forecast and TP. We continue to like DFI for its earnings turnaround play. The divestment of Yonghui Superstores Co is already a step towards reducing earnings drag. Further improvement in its core businesses would continue to contribute towards an earnings upside.
  • Downside risks to our recommendation: Slower-than-expected recovery in consumer spending and higher-than-expected costs, which could ultimately lead to lower margins and earnings.
  • ESG. As DFI's ESG score is below the country median of 3.1, we apply a 2% ESG discount to its intrinsic value to derive our TP.

Source: RHB Research - 15 Jan 2025

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