Duty Free International (DFI, S$0.43) A captive retail model
- Maybank KE issued an unrated note on DFI, one of the largest duty-free trading groups in Malaysia
- Revenue is highly correlated to Malaysia’ retail spending, which has been recovering since late 2015 after GST implementation
- Rising middle class in ASEAN and Greater Asia may also boost tourist traffic and duty free goods consumption
- Recent tie-up with global partner Heinemann will likely lead to margin expansion, and operation efficiencies
- Tap on Heinemann's global purchasing capability for bulk discount with lower risk of overstocking, and introduction of higher-margin products
- Strong MYR is beneficial to the group, currency could be a wild card for FY2/17- DFI trading at 23x FY16 P/E, 3.8SD above 2-year mean of 17x, but lower than the 25x avg of Msian consumer stocks under coverage
- Despite the valuation, duty free business is unique and serves mainly a captive market
- DFI also obtained approval in-principle to transfer to SGX Mainboard form Catalist
- Based on peer average, DFI could trade within a range of $0.34-0.47
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