DFI Retail Group - RHB Invest 2023-03-03: Potential Headwinds Could Stall Recovery

• DFI Retail Group (SGX:D01)’s FY22 results came below expectations on weaker-than-expected margins.
• Recovery prospects should improve following the lifting of pandemic restrictions and China’s economy reopening. However, we remain cautious as headwinds, including inflationary pressure, rising interest rates, and a potential global economy slowdown could pose earnings downside risks.
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• Maintain NEUTRAL on DFI Retail with new US$3.09 target price from US$2.71, 5% downside.

DFI's FY22 results were below expectations

• DFI Retail's FY22 results were below expectations, after reporting a core net profit of US$29m, which accounted for 59% and 62% of our and consensus’ forecasts. The negative deviation could be attributed to weaker-than-expected margins due to cost pressure.
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• DFI Retail's announcement dated 02 Mar 2023 – FY22 revenue of US$9.2bn was flat y-o-y, with the higher health and beauty contribution (+12%) mitigating the fall in grocery retail sales (-7%). The former was boosted by a Hong Kong market share gain and South East Asia region’s broad market reopening, while the latter normalised from the high FY21 base that benefitted from the spike in demand as a result of dine-in restrictions.
• Meanwhile, the FY22 underlying operating profit dipped 33% to US$209m – largely dragged down by a sharp decline in the grocery retail wing’s contribution. This is in line with the topline weakness, and exacerbated by the higher costs of goods sold and operating costs on the back of an inflationary environment.

DFI Retail – Outlook.

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