“While the special dividend was anticipated, the quantum came as a positive surprise,” says Chee Zheng Feng of DBS Group Research, who describes this amount as “mind blowing”, and has in his July 24 note upgraded his target price to US$4.30 from US$3.60 to take into account also a higher valuation premium.
The dividend announcement drove DFI up 9.18% to close at a four-year-high of US$3.45 on July 23, extending its year-to-date gain to 50%. Is Hong Kong-based DFI, which has reported lacklustre results at best for years since the civil protests of 2019, poised for a turnaround?
At the results briefing the following day, CFO Tom van der Lee says that the total return of US$647 million “underscores our confidence in our long-term strategy, discipline capital allocation and focus on total shareholder return (TSR)”.
DFI CEO Scott Price attributes the payout to the firm’s “strategic progress”, including a more focused portfolio on higher-margin businesses and capital unlocked from divestments. These include the sale of its stakes in Yonghui and Robinsons Retail, which collectively brought in nearly US$900 million in proceeds, strengthening the group’s balance sheet to a net cash position of US$442 million.
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By the end of this year, DFI is also expecting the completion of the US$93 million sale of its Singapore supermarket chains Cold Storage and Giant to Malaysian company Macrovalue. “All our revenue streams are now from [majority-owned businesses] and I think that is a healthy position,” says Price.
Underlying profit for 1HFY2025 rose 39% y-o-y to US$105 million. While only the health and beauty segment saw revenue growth, profits for most segments increased on the back of better cost control.
The health and beauty division — home to brands such as Mannings and Guardian — recorded an 8% profit growth. The food division, which includes the Wellcome supermarket chain, delivered 14% profit growth as a result of cost control and improvements in product sourcing. Home furnishings division saw a 164% profit increase.
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The convenience division — which includes a growing chain of 7-Eleven stores — was hit by higher cigarette taxes in Hong Kong, which distorted y-o-y comparables due to a one-off windfall in 2024. Excluding cigarettes, sales in this division held steady.
Beyond the robust interim numbers, DFI has lowered its full-year organic revenue growth guidance down to 0.5% to 1%, from 2%, citing “broader economic uncertainty and a sharper-than-expected decline in cigarette sales”. It also raised its underlying profit guidance to between US$250 million and US$270 million, up from its earlier range of US$230 million to US$270 million.
The one-off special dividends might please many shareholders, but CEO Price is careful to manage expectations that quick earnings growth is not going to happen anytime soon. DFI’s recent moves are an attempt to capture a bigger slice of the mass market, given the growing propensity for many to cut back on their spending, such as eating out. “In my 30-something plus years in Asia, this is the first time we have seen such a broad-based negative consumer sentiment,” says Price.
Chee of DBS says the sizeable special dividend payout suggests that DFI will not have the appetite to look for potential acquisitions. Rather, growth — at least in the near term — will come from driving operational efficiencies. Chee believes this is the right strategy, given how acquisition targets, when available, remain richly valued and carry high write-off risks. “Meaningful growth can be achieved internally through improved execution,” adds Chee, who estimates that the company can generate more than US$100 million in operational efficiencies. Every 0.1 percentage point (ppt) increase in operating margin implies a 2.2% uplift to FY2026 patmi, he says.
UOB Kay Hian’s Adrian Loh, too, shares similar positive sentiments, as he keeps his “buy” recommendation and increases target price on DFI to US$4.30 from US$3.50 previously. While he praises the group’s robust 1HFY2025 results, he also notes that the outlook remains bright, in his view, with strengthened growth prospects.
Other Jardine stocks
In a way, DFI’s higher-than-expected payout will be the most beneficial to its controlling shareholder, Jardine Matheson Holdings, which is poised to collect more dividends from another subsidiary: Hongkong Land. Jardine Matheson holds 78% of DFI and 53% of Hongkong Land.
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Last October, Hongkong Land, also traded on the Singapore Exchange, laid down a 2035 target to double its underlying profit before interest and tax, and to do so in a more geographically diversified manner, with no single city accounting for more than 40% this number. It is also aiming to grow its assets under management to US$100 billion and actively recycle capital of up to US$10 billion.
In the near term, the company aims to recycle US$4 billion to US$6 billion by the end of 2027 through winding down its build-to-sell residential business and divestment into REITs and other third-party capital vehicles. For more than a decade, Hongkong Land has been steadily increasing its annual payout from 17 US cents paid for FY2013 to 22 US cents for FY2024. The company aims to double its dividends come 2035, and while it works towards that goal, it has been actively buying back shares, with the most recent purchase of 235,000 shares on July 22 at a weighted average of US$6.3465 per share.
Hongkong Land’s ambitious capital management plan was amid a highly visible US$1 billion redevelopment of Landmark, its flagship mixed-use complex in Hong Kong’s Central district. The company will invest US$400 million of its own capital, while a group of key retail tenants such as Louis Vuitton, Chanel, Dior and Tiffany & Co. will contribute the remaining US$600 million throughout the three-year transformation. This marks one of the largest luxury retail redevelopments in Hong Kong’s history.
CEO Michael Smith calls the project a “powerful endorsement of Central’s enduring role as the city’s iconic business and lifestyle hub”.
Despite temporary rental income loss from redevelopments, the group expects stronger tenant sales and higher rents once the new boutiques are operational.
Even amid broader challenges such as growing cross-border retail competition from Shenzhen and Macau, Hongkong Land remains optimistic. Tenant sales in overall 2024 saw a dip, but this was attributed to planned renovations and temporary store closures for the planned redevelopment.
The company’s confidence in its retail strategy is reinforced by its loyal customer base, but structural cost challenges persist for Hong Kong’s retail market, particularly as consumers look north for more affordable alternatives. Market analysts expect retail rents in Hong Kong to face downward pressure as the city grapples with cost competitiveness relative to Shenzhen.
According to Bloomberg Intelligence, Hongkong Land’s 1HFY2025 underlying profit could spring back from its year-earlier loss — which was largely due to non-cash impairment charges against its mainland China properties — despite falling rental income from its Hong Kong offices.
On its part, Hongkong Land shares have been enjoying a good run as well, with a gain of more than 42% year to date to close at US$6.33 on July 23. Mandarin Oriental International, another listed Jardine subsidiary, is up by a more modest near-11% in the same period. Jardine Cycle & Carriage, with its heavy exposure in Indonesia, bucks the trend. It is down 5.77% year to date.
Meanwhile, parent company Jardine Matheson Holdings has started moving up in the past month by a fifth. Year to date, it is up by a third to close at US$55.33 on July 23.
