Financial Analysis of Duty Free International Limited: 9-Month Net Profit Growth of >100%

Business Description

Duty Free International Limited (DFI) is a Singapore-based investment holding company listed on the Singapore Exchange. The Group operates primarily in Malaysia, with two main business segments:

• Trading of Duty-Free Goods and Non-Dutiable Merchandise: This includes retail, wholesale, and distribution of duty-free goods, such as liquor, tobacco, and confectionery.
• Investment Holdings and Others: Includes revenues from the cultivation of oil palm and property management.

The company’s key revenue streams include the sale of goods, parking operations, rental income, and the sale of fresh oil palm fruit bunches. Its geographic footprint is largely centered in Malaysia, with no major international customers highlighted in the report.

DFI operates in a competitive retail duty-free market, facing competition from other regional and global duty-free operators. Its market share is not explicitly stated, but the company benefits from its strategic locations and long-standing relationships with suppliers and customers.

Revenue Streams and Competitive Advantage

• Revenue for the nine months ended 30 November 2024 increased by 7.3% to RM116.7 million, driven by higher demand and changes in sales mix.
• The company’s customer base is diverse, including travelers and retail shoppers, but specific customer details are not disclosed.
• Its supply chain appears stable, with improved inventory turnover and reduced inventory purchases during the reporting period.
• DFI’s competitive advantage lies in its established presence in Malaysia’s duty-free industry and its ability to manage operations efficiently amidst challenges such as land acquisitions.

Analysis of Financial Statements

Income Statement

• Net Profit: The company achieved a net profit of RM39.8 million for the nine months ended 30 November 2024, marking a significant growth of >100% compared to RM8.5 million in the previous year.
• Revenue: Increased by 7.3% to RM116.7 million over the same period, supported by a rise in demand and sales mix adjustments.
• Compensation from Land Acquisition: A one-time compensation of RM69.6 million was recorded, significantly boosting profitability.
• Employee Benefits: Increased by 53.2% due to compensation payouts following the closure of the Bukit Kayu Hitam outlet.
• Professional Fees: Surged significantly due to legal and professional costs for securing fair land compensation.

Balance Sheet

• Total Assets: RM530.1 million as of 30 November 2024, up from RM481.6 million as of 29 February 2024, driven by cash inflows from land compensation.
• Cash and Bank Balances: Increased to RM252.5 million from RM185.1 million, reflecting robust liquidity.
• Liabilities: Total liabilities stood at RM147.7 million, with an increase in trade and other payables due to accrued employee benefits and legal fees.
• Equity: Net assets rose to RM382.4 million from RM348.3 million, reflecting improved financial health.

Cash Flow Statement

• Operating Activities: Net cash generated was RM19.2 million in 3Q FY2025, up from RM11.3 million in 3Q FY2024, due to improved inventory turnover and lower cash usage in operations.
• Investing Activities: RM71.3 million net cash inflow, primarily from land acquisition compensation.
• Financing Activities: Net cash outflow of RM2.8 million, reduced due to the absence of dividend payments in the current quarter.

Dividend

The company declared a second interim dividend of S\$0.0055 per share, payable on 7 February 2025. The total dividends for FY2025 amount to RM25.7 million (S\$0.0065 per share).

Key Strengths

• Significant net profit growth (>100%) primarily due to land compensation.
• Robust cash position (RM252.5 million) provides financial stability and opportunities for reinvestment.
• Continued profitability in core operations despite challenges.
• Strategic joint development agreement with Chin Hin Property to unlock land value and diversify revenue streams.

Key Risks

• Ongoing legal proceedings related to land compensation could lead to financial uncertainty.
• Closure of the Bukit Kayu Hitam outlet may negatively impact future revenue.
• Rising operating costs and inflationary pressures could squeeze margins.

Special Activities

• The company received RM69.6 million in compensation for the compulsory land acquisition of two properties.
• Entered into a joint development agreement expected to generate RM83.57 million in value by 2029.

Investment Recommendations

For Current Investors

Hold. The company’s strong cash position, significant dividend payouts, and strategic initiatives provide a compelling case for retaining the stock. However, monitor the legal proceedings and the impact of the Bukit Kayu Hitam closure closely.

For Potential Investors

Buy. The company’s strong profitability, robust liquidity, and diversification efforts make it an attractive investment. However, consider the risks associated with legal uncertainties and operational challenges.

Disclaimer

This analysis is based solely on the information provided in the financial report for the nine months ended 30 November 2024. Investors should conduct their own due diligence and consider their financial situation before making investment decisions.

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