SINGAPORE (Oct 13): Duty Free International (DFI) 1H17 results that has spurred research houses CIMB and UOB Kay Hian to maintain “buy” ratings of the counter with target prices of 61 cents and 57 cents respectively.

(See also: <a href="http://www.theedgemarkets.com.sg/sg/article/duty-free-international%E2%80%99s-2q-earnings-45-45-mil">Duty Free International’s 2Q earnings up 45% to $4.5 mil</a>)

CIMB expects Malaysia’s largest duty-free retailing group in Malaysia to report better gross margins for FY17 while UOB Kay Hian expects DFI to post better 2H17 results.

CIMB analyst Ngoh Yi Sin said new stores and promotions boosted 1H17 revenue by 20.7% to RM350 million ($163 million), accounting for about half of the research house’s full-year forecast. The increase was mainly due to aggressive stock clearing as well as the opening of two new retail stores at Kuala Lumpur International Airport 2.

Both CIMB and UOB also agreed that DFI saw better gross margins for 1H FY17, with Ngoh forecasting that margins for FY17 will hit 31.8%, up from 1HFY17 29.8%. Both research houses agree that margin improvements are on the horizon, as the Heinemann partnership starts to bear fruit.

UOB analyst Nicholas Leow said 1H17 earnings accounted for 42% of FY17 forecast earnings, hitting the upper limit of historical first half net profits (ranging from 38% to 42%).

Leow expects a stronger 2H17 as DFI’s operational execution is on track and the second half typically makes up 58–62% of full-year earnings. The company is also positioning itself for future growth, remaining modest about FY17 outlook, notes Leow. DFI will be also be focusing on enhancing retail outlets via improving product categories, supply chain and logistics management in the uncertain macroeconomic conditions.

On Oct 5, DFI was transferred to the Mainboard from Catalist board of the Singapore Exchange, notes Leow. The company states that this is to build a stronger investor base and enhance the profile of the company.

While the company seems to be taking off, CIMB’s Ngoh points out that forex movements are not in DFI’s favour. The company lost RM4.5 million in forex when US$-denominated payables as the RM weakened against the US dollar in 1HFY16. While the company saw a reversal in 1HFY17 to post a RM1.9 million gain, Ngoh highlights that DFI makes 50% to 60% of its purchases in US dollars and the rest in ringgit, anticipating unfavourable forex movement in 3QFY17 should the US dollar strengthens.

Shares of DFI are trading flat at 44.5 cents.

Duty Free Int'l an attractive counter to check out

Creative Technology expects 2HFY2022 revenue to be below target at US$27 mil

Straits Times Index decline resumes as it could head towards 3,000 

DBS says it remains buyers of Digital Core REIT after further downside in price

Opening up to new horizons: Digital assets as a means of settlement in cross-border transactions 

Three-quarters of Singaporeans answered scam calls recently: Toku  

Businesses in Singapore eager to hire international talent with the rise of remote work

Sheng Siong adds all house brand products on Case app Price Kaki

Duty Free Int'l an attractive counter to check out

Related Stories

Highlights

ARA US Hospitality Trust to sell four Hyatt Place hotels for US$32.5 mil

Related Stories

Broker's Digest: Wing Tai Holdings, Keppel DC REIT, Del Monte, DFI Retail, ComfortDelGro

UOB Kay Hian positive on ComfortDelGro with new Australian contract

UOB Kay Hian sees 50.4% upside to United Hampshire US REIT after Upland Square acquisition