While sales in the first quarter were more or less flat, effective cost management in the form of long-term restructuring of loss-making stores and entities helped shore up profit, notes Yeo.
Thus, DFI Retail has maintained its underlying FY2025 earnings guidance of US$230 million to $270 million, on the back of 2% y-o-y revenue growth.
“Overall, we expect earnings to continue recovering on effective cost management. We raise our FY2025 to FY2027 forecasts and target price by 2% each on better earnings prospects,” writes the analyst.
Excluding divestments, the group booked an increase in underlying profit growth of 28% y-o-y, while headline core profit, including the divestment of Yonghui Superstores declined by 18% y-o-y.
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Revenue was driven by DFI’s health and beauty division, and offset by other segments.
Like-for-like sales growth for the health and beauty division rose by 4% y-o-y, led by Mannings Hong Kong.
The division’s other key markets including Malaysia and Indonesia saw strong like-for-like sales growth, with earnings rising by 10% y-o-y on better operating efficiencies.
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Meanwhile, DFI’s convenience unit’s like-for-like sales growth declined 6% y-o-y, as tobacco tax rose in Hong Kong from late February 2024.
At the same time, like-for-like sales growth for other non-cigarette sales declined by 2% y-o-y, while the food division’s earnings expanded by 14% y-o-y from an improvement in Singapore, like-for-like sales growth was marginally below the numbers recorded in the 1QFY2024.
DFI’s home furnishing business, in the meantime, saw a significant recovery in underlying profit as a result of improved cost controls.
On the impact of US tariffs, Yeo writes: “We see little-to-no direct impact of the US tariffs on DFI. DFI does not derive any sales from the US, and imports from that country accounted for less than 2% of underlying subsidiary sales in FY2024.”
He adds that the procurement of products for the group’s grocery retailers is generally dynamic, with grocers able to diversify their procurement sources internationally for the best prices, quality and import terms.
“Instead, any indirect impact would be on domestic consumption, especially in China and Hong Kong,” writes Yeo.
Key drivers noted by the analyst include revenue growth from more convenience stores, a rebound in China tourists visiting Hong Kong, margin expansion on more direct sourcing, the cutting out of middlemen to sell more fresh produce, an increase in the penetration of corporate brands and finally, the eliminating of non-performing stores
On the other hand, downside risks include a slower-than-expected recovery in consumer spending and higher-than-expected costs could lead to lower margins and earnings.
As at 12.10 am, shares in DFI Retail Group are trading one cent higher or 0.37% up at US$2.74.
