Brokers’ take: Analysts mixed on DFI Retail Group as results underperform
Vivienne Tay
ANALYSTS are mixed on DFI Retail Group ’s recovery prospects after the pan-Asian retailer’s FY2022 results came in weaker than what most research teams expected.
On Mar 2, the group posted underlying earnings of US$29 million for the full year ended December, down 72 per cent from earnings of US$105 million for FY2021.
Net loss for the year stood at US$114.6 million, compared with US$102.9 million in earnings the year before. The loss was mainly due to a US$171 million impairment loss related to the group’s investment in Robinsons Retail.
Although the group’s earnings missed consensus estimates, UOB Kay Hian (UOBKH) noted that looking only at the entire fiscal 2022 year misses the improvements that are more evident when looking at the sequential performance in the second half of 2022.
“At the segmental level, only grocery saw lower revenue and operating profit on a half-on-half basis, while other segments saw significant sequential improvements,” UOBKH analyst Adrian Loh said in a report.
UOBKH and DBS have maintained their “buy” calls, but lowered their target prices. UOBKH cut its target price to US$3.72 from US$3.90, implying a potential upside of 14.8 per cent from the counter’s last trading price of U$3.24 as at 3.18 pm.
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DBS also trimmed its target price on the stock to US$3.80 from US$3.90, implying a potential upside of 17.3 per cent. The lower target price comes as the research team expects continued digital investment costs in the near term.
Meanwhile, Lim & Tan Securities and CGS-CIMB have “hold” calls on the stock. The latter raised its target price to US$3.40 from US$2.60 after rolling over its valuation base year, implying a potential upside of 4.9 per cent.
DBS and CGS-CIMB believe the return of mainland China tourists will bode well for DFI Retail’s health and beauty segment.
“Chinese tourists are the biggest consumers of health and beauty products in Hong Kong. We estimate that they spend US$3.5 billion on cosmetics products, which are of higher quality and cheaper in Hong Kong,” said DBS analyst Andy Sim.
However, DFI Retail’s pace of recovery remains uncertain for CGS-CIMB, as its channel checks show a roughly 30 per cent price premium for products sold in Mannings HK versus popular Chinese e-commerce platforms, with medicinal products an exception.
The research team noted that the continued development of cross-border e-commerce channels and lowered import tariffs in China have broadened product offerings and improved price competitiveness domestically in recent years.
“We think this could result in some irreversible demand pattern shifts after three years of border closures,” said CGS-CIMB analyst Ong Khang Chuen.
The reopening trend in North Asia will also drive recovery for the group’s convenience store and restaurant segments, although grocery retail could suffer from the tapering of demand, both research teams noted.
Expecting a slower-than-expected post-pandemic recovery for the grocery segment, UOBKH lowered its FY2023 and FY2024 earnings estimates after factoring in slightly weaker gross profit margin estimates.
CGS-CIMB expects FY2023 to be a year of recovery for the group, compared with a low base from FY2022. DBS, meanwhile, anticipates a multi-year recovery in these business segments, with full recovery expected in FY2025.
Although earnings per share momentum for the group has been negative over the past 12 months, UOBKH believes the company is near an earnings trough, which should “incrementally get better” over the next two to three quarters. The research team projects dividends to pick up in FY2023 due to early signs of business improvement in the year to date.
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