<Results Analysis> DFI Retail Group: 1H22 performance below on continued restrictions
- DFI reports headline loss of US$52m, due to US$60m loss from associates – below expectations
- Underlying profit from subsidiaries at US$76m, 51% down from last year
- 1 US cts interim dividend declared in 1H22, vs 3 US cts last year
- For confidence in share price to return, 2 key factors are needed – COVID restrictions needs to be firmly eased in North Asia; concrete positive results from investments
DFI Group headline loss of US$52m; significantly impacted by lockdowns and associates’ loss. DFI Retail Group (DFI) reported a headline net loss of US$52m, which includes US$60m loss from associates (largely Yonghui and Maxim). While its subsidiaries remained profitable, reporting 1H22 sales of US$4.48bn (-1.2% y-oy) with an underlying operating profit of US$76m, this was 51% lower than same period last year. While the Group had, in its 1Q22 business update in May 22, guided for 2022 results to be lower compared to 2021, we believe the headline performance may still take the market by surprise.
Health and Beauty performance failed to mitigate weakness in Grocery Retail and Convenience Stores, as well as higher investments in digital. Among the performance of its subsidiaries, while Health and Beauty posted strong performance, this failed to mitigate the weakness in its Grocery Retail as well as Convenience Stores. In addition, the Group also increased its investments in digital capacity and capability, which is said to be necessary to meet customers’ needs and to drive its long-term growth and value.
Overall performance dragged down by Yonghui and Maxim’s contribution. The underwhelming headline performance can be attributed to the Group’s share of Yonghui’s results amounting to US$64m (due to the latter’s performance in 4Q 2021) as well as losses from Maxim’s, which contributed an underlying loss of US$26m due to movement restrictions in Hong Kong.
Interim dividend of 1 UScts was declared for 1H22, vs 3 US cts a year ago.
Grocery Retail segment hard hit by reopening in Southeast Asia, cost inflation and investments. While Grocery Retail in North Asia saw good like-for-like sales, this failed to negate the impact from Southeast Asia in which the Group’s operations were affected by easing restrictions, store renovations in Singapore and stock availability in Malaysia. As a result, 1H22 Grocery Retail saw sales dipped by 8.5% y-o-y to US$2.0bn (from US$2.19bn). Along with higher costs of goods, operating costs from labour and electricity, and e-commerce investment costs, operating profit for the segment plunged by 44.2% to US$47.4m, from US$84.9m a year ago.
Convenience Stores impacted by Hong Kong and China restrictions. While Singapore convenience stores saw strong sales and profit arising from easing of restrictions, the segment was impacted by restrictions in China and Hong Kong. As a result, sales for the segment in 1H22 remained at US$1.08bn, but profitability was impacted with an operating loss of US$0.1m, down from a profit of US$18.6m a year ago.
Health & Beauty the star; 1H22 sales +11%, operating profit +91% y-o-y. Health & Beauty was the star performer with 1H22 sales at US$984.5m, up by 11% y-o-y due to recovery across North Asia (Mannings) and Southeast Asia (Guardian). Mannings Hong Kong saw higher like-for-like sales due to surge in demand for COVID-19 related products and over-the-counter (OTC) medicines, while Guardian stores across Southeast Asia benefitted from the easing of COVID restrictions and recovery in mall and tourist locations. Overall, operating profit for Health and Beauty almost doubled to US$39.3m (+90.8% y-o-y) in 1H22, compared to a year ago.
Home furnishing improved from new stores and e-commerce. Home furnishing saw 1H22 revenue improved by 6.4% y-o-y yo US$409.6m, on the back of newly-opened stores last year and e-commerce sales. However, like-for-like sales were impacted in 1Q22 due to COVID restrictions on store operating capacity as well as stock availability. Notwithstanding the challenges, Home Furnishing segment posted an operating profit of US$15.2%, up by 32.2% y-o-y, with like-for-like sales improving in 2Q22.
Maxim also reeled from restrictions in Hong Kong, while Robinson Retail (RRH) benefited from Philippines’ easing of restrictions. Maxim was severely impacted by the restrictions from dining-in in Hong Kong, and the temporary lockdowns in China. The opposite was true for RRH where its drugstores, department stores and specialty segments saw strong performance as economic activity increase with restrictions being eased. For Hong Kong, it was noted that like-for-like sales recovered over the course of 2Q as restrictions eased.
Facing headwinds; firm easing of restrictions and concrete results from investments needed. While the Group had earlier guided for a weaker 2022 compared to 2021, its 1H22 underwhelming performance took us by surprise. The impact from Yonghui may be well-flagged though the steep plunge in underlying performance of its subsidiaries, particularly in its Grocery Retail segment – traditionally the main contributor, could be hard for the market to digest. There continues to be challenges faced by the Group and we understand the investments are needed for its longer term sustainable growth. However, for confidence in the share price to return, we believe two key factors are needed: (i) the firm easing of restrictions in North Asia; (ii) concrete positive results from investments ploughed in thus far.
Forecasts and TP under review. We are reviewing our forecasts and will provide further updates post its briefing.