The group suffered from lower sales but was mitigated by higher operating margins in certain segments. Management cited a challenging Chinese New Year and the absence of an extra leap-year trading day in 2016 as reasons for softer sales.
“We interpret this as still subdued consumer discretionary spending, and believe the problem markets were Southeast Asia,” says analyst Jonathan Seow in a Thursday flash note. “We believe their Greater China markets did well, especially since overall Hong Kong tourist arrivals were up 3.7% in 1Q17, with Mainland arrivals up 3.8% y-o-y.”
Operating profits for DFI’s food division fell despite marginally positive sales in Greater China due to weaker sales in Southeast Asia. According to Seow, the Health and Beauty segments performed better than expected, reporting higher sales and profits. Home furnishings and associates Maxim’s and Yonghui also achieved improved sales and profits as well.
“We think the stock could re-rate higher upon positive sales growth. Downside risk includes margin deterioration,” says Seow.
DFI shares are trading at US$8.69.
