DFI Retail Group - More Time Needed
- DFI Retail announced a disappointing set of 1H22 results, reporting a net loss of US$52m, vs both our and Bloomberg consensus expectations of a profitable FY22F. Underlying operating profit shrank 51% y-o-y to US$76m, as recovery from the Health and Beauty (H&B) segment and increased contribution from IKEA were more than offset by weaker Grocery Retail and Convenience segments.
- DFI Retail Group (SGX:D01) was dragged into the red with US$65m share of associate losses from Yonghui (one quarter delay in recognising its substantial 4Q21 loss) and Maxim’s (Hong Kong’s movement restriction).
- While we think that the worst is likely over for Hong Kong retail sales with easing COVID-related restrictions and rollout of consumption voucher scheme, we see a bumpy path to recovery. Given Hong Kong and Mainland China’s current divergence in COVID strategy, we see significant challenges to borders reopening in the near-term.
- We think a meaningful recovery for DFI Retail Group’s Health and Beauty segment (biggest earnings contributor pre-COVID) is only likely from 1H23F.
- A bright spot is the potential turnaround in associate Yonghui’s (601933 CH) earnings in FY22F, given reduced subsidy levels for community group purchase platforms, which has improved competitive environment in China. Our China consumer analyst forecasts Yonghui to return to profitability in FY22F. We also expect a turnaround of Maxim’s business with easing restrictions in Hong Kong to aid DFI Retail Group’s return to the black in 2H22F.
- Maintain HOLD call on DFI Retail Group in view of the continued challenging operating environment. We cut our FY22-24F earnings per share forecast for DFI Retail Group by 3%-46% to bake in margin assumptions; our target price for DFI Retail Group is accordingly lowered to US$2.60, still based on 16.0x CY23F P/E (2 standard deviation below 5-year historical mean).
Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.
ONG Khang Chuen CFA CGS-CIMB Research | Kenneth TAN CGS-CIMB Research | https://www.cgs-cimb.com 2022-07-29 2022-07-29
Previous report by CGS-CIMB:
2022-06-24 DFI Retail Group - FY22F A Year Of Investment
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