DFI Retail Group: Should Investors Be Excited By Its FY2022 Earnings?

March 20, 2023

DFI Retail shares

For most Singapore investors, the biggest names on the Singapore Exchange (SGX) are banks and REITs.

However, a few decades ago – in 1994 to be precise – large conglomerate Jardine Matheson Holdings (SGX: J36) moved its stock market listing from the Hong Kong Stock Exchange to the SGX.

Along with it came a host of other listed companies under the Jardines umbrella. Many of them (including Jardine Matheson) remain component stocks of the Straits Times Index (STI) today.

One of the most well-known Jardines subsidiaries back then was Dairy Farm.

Cold Storage and Giant owner

Today, after a rebrand, it’s better known as DFI Retail Group Holdings Ltd (SGX: D01) and it remains an STI component stock.

DFI Retail owns the popular Cold Storage and Giant supermarkets, as well as pharmacy Guardian, in Singapore.

However, most of its business is actually located in Hong Kong and China, with ownership of its Wellcome, Mannings, IKEA and 7-11 operations.

At the start of March, DFI Retail reported its FY2022 earnings results. But did the company beat expectations and should investors be thinking about getting back into DFI Retail shares?

DFI Retail’s net profit takes a big dive

Most investors are aware that retail was hard hit in North Asia during 2022, mainly due to China’s zero-Covid policy that came with frequent and widespread lockdowns.

Unsurprisingly, DFI Retail’s business was also impacted. The company reported a net loss for FY2022 of US$115 million.

However, that included a US$171 million impairment charge due to its ill-advised investment in Robinsons Retail.

Even excluding that, though, its core profit was just US$29 million for the whole of FY2022 – down a whopping 72% year-on-year and coming in well below consensus expectations.

Its “core net profit” or underlying earnings is a better measure of the DFI Retail’s actual operating performance yet with FY2022 revenue of US$27.6 billion – down just 1% from FY2021 – there are still clearly issues at DFI Retail.

Some signs of life in H2 2022

While there were quite a few lockdowns throughout 2022, we do know that both Hong Kong and China opened up rather rapidly from November 2022 onwards.

That was reflected partially in better H2 2022 net profit for DFI Retail, which saw a sequential improvement to US$80 million in the second half of the year.

That was up markedly from the US$52 million net loss in H1 2022.

Yet the company’s dividend has taken a battering. Typically seen as a reliable consumer stock in the old days, DFI Retail announced a FY2022 final dividend per share (DPS) of 2 US cents, down from the 6.5 US cents in 2021.

Along with its interim DPS of 1 US cent, a FY2022 total DPS of 3 US cents was down nearly 70% from the 9.5 US cents paid out for FY2021.

Intense competition from China

One of the big issues for DFI Retail has always been adapting to the competitive environment. Previously it was caught out by the rapid move towards omnichannel retail.

Now it looks like increased competition from China e-commerce is eroding its dominant position in certain healthy & beauty segments.

According to channel checks from CGS-CIMB Analyst KC Ong, there are 30% price premiums for products sold on Mannings Hong Kong versus other popular Chinese e-commerce platforms.

Lower import tariffs and the development of cross-border e-commerce channels in recent years looks like it may start to impact DFI Retail in a more permanent fashion.

Strong rebound likely in 2023 but headwinds persist

Overall, though, while there are concerns around longer-term competitiveness, DFI Retail will certainly see a strong rebound in its business in 2023.

The question remains just how strong that rebound will be. Margins and core net profit should both be up substantially.

The company is also facing something all other consumer products firms are battling – rising input costs from soaring inflation.

To what extent that will impact the margin recovery is hard to predict. But with DFI Retail shares up 45% from their 52-week low in late October 2022, a lot of the recovery could already be priced in.

Investors should also remember that DFI Retail shares were trading as high as US$13.50 in early 2013 whereas today they sit at US$2.84.

At its current price, DFI Retail shares are giving investors a 12-month trailing dividend yield of 1.1%.

Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips doesn’t own shares of any companies mentioned.

Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.

He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.

In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.

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