Strong sales in its Health and Beauty segment was offset by lower contributions from other divisions. Within its home market of Hong Kong, the group saw reported and LFL sales down by approximately 2% y-o-y or stable when excluding the impact of cigarette tax.
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Analysts are keeping a rather positive view on DFI following its 1QFY2025 business update.
DBS Group Research is reiterating its "buy" call and US$3.00 target price.
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Analyst Chee Zheng Fong note that while top-line growth was disappointing (flat on a like-for-like basis), he believes that this was largely due to a high base for the Convenience segment. The segment saw sales decline following the increase in cigarette tax in Hong Kong in late Feb 2024.
"Looking ahead, we expect this impact to moderate. With the repayment of US$617 million in debt, and assuming an average interest cost of about 5% in FY2024, we estimate the company could realise interest savings of around US$23 million over the next three quarters," says Chee.
Based on Yonghui’s contribution of US$23 million in the prior year, Chee estimates 1QFY2025 underlying earnings at about US$52 million. Annualised (assuming no significant seasonal variation), this implies approximately US$208 million in core earnings. When combined with the expected interest savings, the lower end of management’s FY2024 guidance (US$230 million) appears readily achievable.
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Taking into account the seasonally stronger second half, driven by mooncake sales in the third quarter for Maxim’s, and assuming about US$28 million profit uplift between the first half and second half (based on the FY2017 and FY2018 average), Chee believes that DFI remains on track to deliver above-consensus core earnings estimate of US$259 million for FY2025.
CGS International too has kept its "add" call but with a higher target price of US$3.00 from US$2.71 previously, as analysts Meghana Kande and Lim Siew Khee expect cost efficiencies from its streamlined business portfolio and improving operating environment.
"We think DFI’s disciplined execution towards driving profitability and a net cash position of US$127 million as of end-Mar 2025 are re-rating catalysts," they say, while adding that other catalysts include faster recovery of its Hong Kong supermarket sales, announcement of a special dividend and higher-than-expected growth in Southeast Asia.
Downside risks include slow economic recovery in Hong Kong affecting its sales growth and cost pressures impacting margin uplift.
As at 10.30am, shares in DFI are trading at US$2.72.
