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Duty Free International (DFIL SP) - UOB Kay Hian 2017-01-13: 3QFY17 Results ~ Rewards Galore; Christmas Comes Late

Duty Free International (DFIL SP) - UOB Kay Hian 2017-01-13: 3QFY17 Results ~ Rewards Galore; Christmas Comes Late DUTY FREE INTERNATIONALLIMITED 5SO.SI

Duty Free International (DFIL SP) - 3QFY17 Results ~ Rewards Galore; Christmas Comes Late

  • Duty Free International’s (DFI) 3QFY17 headline net profit jumped 32.9% yoy to RM22.3m from RM16.7m in 3QFY16.
  • In line with our expectations, the group’s net cash continued to balloon to RM227.2m from RM178.2m in 2QFY17. DFI declared another interim dividend of 1.25 S cents together with a 2-for-5 bonus warrant issue, which surpassed our expectations.
  • Maintain BUY with a slightly lower DCF-based target price of S$0.55.


3QFY17 headline net profit rose 32.9% yoy. 

  • Duty Free International’s (DFI) 3QFY17 headline net profit came in at RM22.3m (3QFY16: RM16.7m), attributable to a stronger forex gains of RM9.6m (3QFY16: forex loss of RM2.2m). 
  • Stripping out the forex effect, pre-tax profit would have dropped 30% yoy.

Feeling the impact as Thailand mourns the loss of its monarch. 

  • Revenue fell 13% yoy to RM133.0m (3QFY16: RM152.9m) due to a slowdown in tourism traffic to and from Thailand following the passing of King Bhumibol Adulyadej.

A dividend surprise and bonus warrants. 

  • DFI declared a second interim dividend of 1.25 S cents, bringing ytd dividend to 2.5 S cents, which translates into a yield of 6.4%. This has exceeded our forecast of 2.2 S cents for the year. 
  • In addition, DFI proposed a 2- for-5 bonus warrant issue with an exercise price of S$0.43/share. This represents a 10.3% premium to the last closing price. 
  • Assuming the warrants are fully converted, this would increase DFI’s share base to 1,672m shares and raise gross proceeds of S$205.4m. Subject to SGX-ST approval, the warrants will be tradable.


Weakness in sales may persist into 2017. 

  • Thailand officially entered into a one-year mourning period following the passing of King Bhumibol on 13 Oct 16. Officials also declared a one-month ban on all celebratory behaviour, which included drinking alcohol in public. This had a direct impact on sales in the four DFI outlets in the MalaysiaThailand border towns which we estimate to contribute 30-50% of annual sales. 
  • We expect a pick-up going into 4QFY17 as the situation normalises.

A 4QFY17 dividend unlikely, in our view. 

  • In FY12-16, DFI paid out full-year dividends ranging from 1.5 to 2.5 S cents. Furthermore, we take the recent bonus warrant exercise as an intention to build a war-chest to fund potential acquisitions or expand into overseas markets such as Myanmar, Cambodia and China. Any accretive acquisitions will likely see further upside to our target price.

Net cash balance improving slowly. 

  • The group’s net cash balance improved from RM178.2m (or 12% of current market capitalisation) as of 31 Aug 16 to RM227.2m (or 16% of market capitalisation) as of 31 Nov 16. 
  • The change in net cash position and the cash conversion cycle was mainly driven by all-round improvements in working capital as the benefits of the Heinemann tie-up slowly stream in.


  • We reduce our FY17-19 net profit forecasts by 4-10% on the back of reduced sales forecasts as we factor in lower sales in the Malaysia-Thailand border towns resulting in negative operating leverage.
  • Key risks include: 
    1. regulatory risks, 
    2. geo-political risks or an outbreak of diseases that could hinder travel, 
    3. renewal risks at duty-free airport outlets, 
    4. changes in Malaysia’s GST or other duties that could impact the price differential, and 
    5. M&A that may not be accretive.


  • Maintain BUY with a slightly lower DCF-based target price of S$0.55 (WACC: 7.5%, terminal growth: 1%). 
  • We continue to view DFI as a defensive consumer play with a solid dividend yield. We forecast dividend yields of 6.5% and 7.1% for FY18-19.
  • Our forecasts have not factored in any potential M&As, which is a distinct possibility as the group’s cash balance continues to build up together with the recent announcement of the bonus warrant issue.


  • Potential share price catalysts include: 
    1. accretive M&A, 
    2. better-than-expected FY17 earnings as benefits from Heinemann flow through, and 
    3. rising dividends in line with higher earnings.

Nicholas Leow UOB Kay Hian | Andrew Chow CFA UOB Kay Hian | 2017-01-13
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 0.55 Down 0.570



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