<1Q22 Business Update> 1Q22 mixed bag; The Farm awaits the Chinese
- 1Q22 business update shows a mixed bag
- Grocery Retail and Health & Beauty helped by North Asia’s COVID restrictions, while South-East Asia easing restrictions helped Health & Beauty but not Grocery Retail
- Management expects 2022 results to be lower than 2021, on variability of COVID restrictions in North Asia and impact from Yonghui.
- Key catalyst for performance is easing of restrictions and borders in North Asia, and improved operating performance. Maintain HOLD, TP: S$3.01
What’s new?
1Q22 a mixed bag; expectations for 2022 results to be lower vs 2021. DFI Retail Group (DFI) released a qualitative management statement commentary of its 1Q 2022 (1Q22) performance. Overall, based on our assessment of its comments, performance is seems to be a mixed bag – high COVID infection and restrictions in North Asia helped Grocery Retail (GR) and Health & Beauty (HB) segments, but impacted Convenience Stores (CS) while easing restrictions in South East Asia (SEA) boosted HB and CS segments, but had a opposite effect on GR segment. Overall, management expects 2022 full year results to be lower vs 2021.
Outlook (-ve): Management guided for full year reported results for the Group to be lower. In its statement, management remains cautious amid the uncertainty and outlook due to the high variability with respect to the pandemic restrictions in Hong Kong and Mainland China. The border closure between Hong Kong and Chinese mainland was also cited to be a factor.
Our views.
Management’s expectations for outlook for 2022 full year results to be lower vs 2021 is a dampener and seems to be a step from their commentary during their 2021 results release. However, we believe this is premised on the strict restrictions in North Asia coupled with the impact from Yonghui. We believe share price will likely remain range bound, on expectations for easing, but needs key catalyst for COVID restrictions to be lifted and borders reopened. Maintain HOLD, TP: S$3.01
The follow table summarises management’s statement:
| Revenue | Like-for-like sales | Margins | Profitability | Comments | |
| Grocery Retail | Up | Up | Flat | Higher sales in North Asia negated partially by SEA, and profitability flat yoy on store expenses and utilities | |
| – North Asia | Up | Up | Helped by pantry stock due to restrictions | ||
| – South-East Asia | Down | Down | Down | Easing restrictions and supply chain disruptions | |
| Convenience Stores | Down | Down | Down | Movement restrictions in HK/ China impacted business. Strong performance in Singapore unable to mitigate impact | |
| – North Asia | Down | Down | |||
| – South-East Asia | Up | Up | |||
| Health & Beauty | Up | Up | HK/ China – COVID products and OTC medicines; easing SEA restrictions | ||
| – North Asia | Up | Up | |||
| – South-East Asia | Up | Up | Up | ||
| Home Furnishing | Up | Down | Flat | Revenue up on new stores and e-commerce, but movement restrictions have impact on like-for-like sales | |
| Maxim | Down | Down | Impacted by dining restrictions | ||
| Yonghui | Up | Up | Up | ||
| Robinson Retail | Up | Up | Up | Up | Easing restrictions in the Philippines |
Grocery Retail (flat). Overall, Grocery Retail profitability was flat vs last year. Like-for-like sales in 1Q22 was ahead of last year, mainly driven by pantry stocking in North Asia, while easing restrictions in South-East Asia had an opposing effect. The higher utilities, store renovations in Singapore, as well as disruptions in stock availability in Malaysia negated the positives in North Asia.
Convenience Stores (-ve). Restrictions in Hong Kong and mainland China had a significant impact to the Group’s CS operations there. This was partially mitigated by a strong performance in Singapore with the easing of restrictions. Given the higher proportion of 7-Eleven stores in Hong Kong and mainland China vis-à-vis Singapore, we expect that Singapore’s strong performance is unable to mitigate the negative impact.
Health & Beauty (+ve). Health & Beauty posted strong sales in both Hong Kong (Mannings) due to demand for COVID-19 related products and over-the-counter medicines, while Guardian’s sales in South-East Asia was also robust on easing restrictions. Overall, profitability grew strongly y-o-y.
Home Furnishing (flat). This segment saw higher revenue due to annualization of newly-opened stores in the prior year and e-commerce sales. However, like-for-like sales were lower due to restrictions in Hong Kong and limited operating capacity in Indonesia. Profitability was in-line with last year but outlook is expected to be impacted by geopolitical conflicts and supply chain constraints.
Maxim (-ve). Maxim continues to be affected by dining restrictions.
Yonghui (+ve). Profitability increased on higher sales, gross margins and operating costs control. However, management indicated that DFI’s 2022 results will incorporate Yonghui reported in 4Q 2021, thus having an impact on DFI’s reported results.
Robinson (+ve). All engines firing with double-digit like-for-like sales, with improved economic activity in the Philippines since Feb 2022.