Duty Free International (DFI) operates duty-free retail
outlets throughout Malaysia near border town, terminals, airports, seaport and
tourist attraction. Other business includes a country club and oil palm
plantation. In 2016, Heinemann Asia Pacific(HAP) bought a 15% (with options to
add up to 25%) stake in DFI’s DFZ Capital Berhad (DFZ). DFZ the duty-free
segment which is 97.8% of DFI’s revenue, which mean actually buying DFI itself.
This path the way for Mr Andrea Curt Winnen and Mr Hendrik Korbinian Hedye to
be the new CEO and Operation Director, bringing expertise from from Gebr.
Heinemann, parent of Heinemann Asia Pacific.
Key
milestones
- 2013 – Divestment of business interested with
connection with the Zon Johor Bahru (i.e, hotel, complex and ferry terminal business
operation) on 15 March 2013, recorded in FY 2014
- 2016 - HAP bought a 10% stake in DFZ.
- 2016 - Open new stores at KL International Airport 2.
- 2017- HAP add another 5% stake in DFZ.
Interesting Facts
- Placement taken place in 2015 & 2016 priced at
S$0.32, S$0.365, S$0.38
- DFI together with HAP to explore opportunities within
and outside Malaysia.
- HAP to buy the the remainder 10% within the next 12 months
- HAP bought 5% of DFZ at 9.58million Euro. 100% would worth at 197million Euro, equivalent to SGD 319.7mill. If we divide that by DFI outstanding shares. each DFZ is worth S$0.262 in terms of DFI shares. Hence, DFI is worth at least S$0.26. (base on 23/3/2018 Fx rates).
- HAP bought DFZ at S$1.52 per share vs S$1.19 recorded as cost. A 27.7% gain.
- Expressed interest to dual list at HKEX since July 2015
- Fx rates base on 23/3/2018.
Performance
Revenue growth
is nothing to shout about at CAGR 2.65% however a higher bottom line growth
show that DFI control its operating expenses well.Cash increase
drastically due to share placements as well as sales of equity to HAP. DFI has
been holding the cash for a year now, still do notknow what they
will do with it. NAV continues to grow healthily and steadily, surprise that
the placement did not dilute shareholder’s equity.
Yield
Although top
line growth is not great, it is a good income stock giving good dividend. Payout ratio range from 50% to 160%, will it be
sustainable? For now, with the huge cash pile. Payout should
not be a problem for a while. Average 5 year yield of 10.08%. Above yield is base on share price of S$0.24.
Trouble with Custom
I have no idea what are all
those ‘Act’ but everyone should know about GST. After poking around the
internet I found this in the Malaysia GST guide
As above, goods bought here is duty free, DFI has one store
at Buki Kayu Hitam. Apply the same rule to the accused SMSB which is at
Pengkalan Hulu, should be free of GST tax.
As the custom point out that DFI did not comply to certain condtion. In the worst case scenario, DFI would have to pay the fine and rectify the issue. This will be a one off event. If so, I also doubt DFI will paid the full sum that the custom is asking. 40 million for 2 years, 20 million a year for one store (of 31 stores) is too ridiculous. DFI net profit is only 60 million.
Assumptions
Assuming Darul Metro Sdn Bhd has a value proportional to/gain as DFZ. Darul Metro Sdn Bhd would has a value of S$0.081 (230645/669304*0.262). This show DFI has a value no lesser than S$0.343. And I haven't include the golf and oil palm business.
Conclusion
DFI is a
slow growing company that chuck out good earnings with average net margin of
10%. For now, it appears to be a good income play. HAP acquiring the remaining 10% of DFZ further boosting DFI's already big cash pile.
With HAP,
maybe DFI can finally have better growth opportunity in the near future. I think should have a plan acquiring DFZ.
My DCF give
a fair price of S$0.44 (with 10% Forex MOS), all things remain equal. Give a 20% MOS, a good buy will
be below S$0.35. This value is similar to the estimated value base on the assumption above of S$0.343
However, DFI is not well known for having a high market price. So just hold for dividend until it fly one day. And also we are paying cheaper than HAP who bought at S$0.262 a share at current price.
The custom tax demand may not materialize due to the reason stated above and DFI
is confident about the case. If custom does win in the end. Well, it's time for them to rewrite that GST guide.
Vested at 0.257. Has since divested, same reason for divesting UMS. Prefer a more stable income stock. Revenue wasn't as stable as initially though to be. I have an income & value/growth portfolio. Cash has dropped since with dividend payout and acquisition. Do take note of the cash holding as it will eventually affect the payout ratio.
