DBS Group Research analysts are keeping “buy” on DFI Retail Group D01 with a target price of US$2.70 ($3.61) following the company’s 1HFY2024 ended June results release.
The company reported underlying profit of US$76 million for its 1HFY2024, up 127% y-o-y. The significant profit uplift was driven by its food and convenience segments as well as lower losses at Yihui, offset by soft performance in its home furnishing and restaurants segments.
DFI’s food segment continued to demonstrate strength in Hong Kong despite outbound travel headwinds, supported by continued market share gains. In Singapore, better product mix and strong cost control significantly improved profitability.
In the convenience segment, product mix shifting away from low margin cigarettes to higher margin ready-to-eat improved profitability across all markets. In restaurants, the company’s share of Maxim’s underlying profit came in at US$8 million, 31% lower y-o-y on outbound travel headwinds in Hong Kong.
Notably, DFI’s health and beauty segment saw profitability growth slowdown to 3% y-o-y due to high base effect, increased outbound travel and soft tourist footfall due to adverse weather in 2QFY2024.
Hong Kong saw profitability decline, which was more than offset by strength across its Southeast Asia markets, DBS analysts point out.
While earnings came in at 37% of DBS’s FY2024 estimates, the analysts believe this is not an indication of underperformance. This is as the earnings proportion between the first half of the year and second half has seen significant shifts due to changes post-pandemic while the second half of the year has usually been the stronger half.
“With the company reiterating its guidance, it is also expecting a stronger 2HFY2024 despite macro, changing consumer patterns and outbound travel headwinds. We believe one of the key drivers of much better 2HFY2024 performance could be mooncake sales at its restaurant segment, which has reported average attributable profit of about US$60 million in the second half of the year for the last few years,” the analysts note, adding that the sales mostly come from corporates which are less susceptible to the prevailing soft macroeconomic situation than the average consumer.
Overall, the analysts believe the company should be on track to deliver their FY2024 earnings expectations of about US$200 million. Following its estimate changes across DFI's different businesses, DBS has adjusted its FY2024 revenue forecast lower by 6.1% to US$8.9 billion from US$9.5 billion peviously. Its earnings estimate is also down 3.7% to US$199 million from US$206 million.
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As at 10.47am, shares in DFI are trading 8 US cents higher or 4.6% up at $1.82.
