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DFI Retail Group’s Share Price is Close to its 52-Week Low: Can the Retailer Enjoy a Rebound?

(TSI) guardian DFI
(TSI) guardian DFI

Investors in DFI Retail Group (SGX: D01) have a reason to feel despondent.

Shares of the pan-Asian retailer have lost a third of their value in the past year and are down nearly 13% year-to-date after touching their 52-week low of US$1.98.

DFI Retail Group’s financial numbers, however, paint a different picture.

The blue-chip group reported substantial improvement in its underlying net profit with recoveries seen for both its Convenience and Health & Beauty segments.

We dig deeper into the retailer’s latest earnings report to determine if its shares can enjoy a rebound this year.

Earnings jumped more than five-fold

DFI Retail Group released a strong set of earnings for 2023 that saw a sharp rebound in its underlying profit.

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Revenue stayed flat year on year at US$9.2 billion while the group posted a net profit of US$32 million for the year, reversing the net loss of US$115 million in 2022.

Underlying net profit, however, shot up more than five-fold year on year from US$29 million to US$155 million for 2023.

Note: Underlying net profit strips out the effects of non-trading, one-off items and focuses on ongoing business performance.

The pan-Asian retailer more than doubled its final dividend from US$0.02 to US$0.05.

2023’s dividend came in at US$0.08, sharply higher than the prior year’s US$0.03.

A mixed performance 

It was a mixed result as we dug into each of DFI Retail Group’s four business divisions.

The Food division saw revenue fall 15% year on year to US$3.3 billion, led by intense competition and weakening consumer sentiment caused by high inflation.

Operating profit for this division plunged by 46% year on year to US$45 million.

DFI Retail Group’s Home Furnishings division also saw its revenue and operating profit fall by 5% and 27% year-on-year, respectively, to US$794 million and US$19 million.

It was not all bad news, though.

The group’s Convenience and Health & Beauty divisions performed well, registering year-on-year sales increases of 8% and 21%, respectively.

Health & Beauty saw the biggest improvement in operating profit with a 119% year-on-year surge from US$94 million to US$213 million.

The Convenience division saw a 37% year-on-year jump in operating profit to US$88 million for 2023.

Looking over at DFI Retail Group’s key associates, it was also a mixed bag.

Maxim’s did well with a 23% year on year increase in sales to US$3.1 billion but China’s Yonghui saw sales tumble by 16% year on year to US$10.7 billion.

Encouraging business developments

During 2023, the group reported encouraging business developments for each of its divisions.

The Food division launched a new website and app in the fourth quarter of 2023 (4Q 2023).

There was also a partnership with food delivery company Foodpanda in Singapore to strengthen DFI Retail Group’s digital capabilities.

The Health & Beauty division continued with its network expansion with the opening of more than 130 new stores last year.

The division also upgraded its fulfilment capabilities to support more than 70% of e-commerce order growth in Southeast Asia.

As for the Convenience division, the group introduced more than 4,000 new products last year while opening over 300 new stores.

Ready-to-eat meals were launched which helped in broadening the product portfolio.

DFI Retail Group’s loyalty program yuu now has 4.9 million members in Hong Kong, making up three-quarters of the adult population.

There are new partner launches in the pipeline with monetisation plans in place with suppliers.

Yuu Rewards Singapore has over 1.5 million members comprising 30% of the adult population.

Management intends to implement analytics to enhance the group’s merchandising decisions.

Executing its strategic framework

Source: DFI Retail Group’s 2023 Presentation Slides

DFI Retail Group is utilising a three-pronged strategic framework as shown above.

The first point about putting customers first ensures that the group aligns its store format with customer focus groups.

Management will also implement a “digital reset” to achieve better market share across all its markets and drive engagement with its customer base.

DFI Retail Group also strives to be an employer of choice and will develop and train its staff’s skills.

Driving shareholder value is also a priority for the group and it plans to invest in organic growth and return cash to shareholders through special dividends and share buybacks.

Get Smart: Healthy guidance for 2024

Management has released a healthy outlook for this year with subsidiaries’ revenue expected to post flat to single-digit year on year growth.

Underlying net profit is projected to be in the range of US$180 million to US$220 million, the midpoint of which represents a 29% year-on-year improvement over 2023’s underlying net profit of US$155 million.

The retailer has also committed to absolute dividend growth and will focus on reducing debt levels in light of higher interest rates.

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Disclosure: Royston Yang does not own shares in any of the companies mentioned.

The post DFI Retail Group’s Share Price is Close to its 52-Week Low: Can the Retailer Enjoy a Rebound? appeared first on The Smart Investor.