Duty Free International - DBS Research 2016-09-26: International partnership boost

Duty Free International - DBS Vickers 2016-09-26: International partnership boost DUTY FREE INTERNATIONALLIMITED 5SO.SI

Duty Free International - International partnership boost

  • Largest duty free trading group in Malaysia with more than 40 outlets.
  • Heinemann partnership to yield better cost efficiencies over the longer term.
  • Fair value of S$0.52 based on 20x FY18F PE.

Largest duty free retail player in Malaysia. 

  • Duty Free International (DFIL) is one of the largest duty free trading groups in Malaysia with more than 40 retail outlets nationwide. 
  • DFIL is a licensed duty free retailer under Malaysia’s Customs Act and Free Zone Act. It operates retail outlets under five types of Duty Free Shops (International Airport, Port Duty Free Shops, Downtown Duty Free Shops, Border Duty Free Shops, Domestic Inland Duty Free Shops). 
  • It also owns more than 700 acres of land near the Malaysia-Thailand border at Bukit Kayu Hitam which includes the 18-hole Black Forest Golf and Country Club and an oil palm plantation.

Formed through the RTO of Esmart. 

  • In 2011, Bursa-listed Atlan Holdings Bhd (the 75% major shareholder of DFIL) completed the Reverse Takeover (RTO) of Esmart Holdings Ltd on the SGX and subsequently injected the duty free business and divested Esmart’s electronics business.

Expect operational improvement from cooperation with Heinemann. 

  • DFIL recently sold 10% plus one share sale of wholly owned duty free retail subsidiary, DFZ Capital Bhd for EUR19.7m to Heinemann Asia Pacific, (one of the largest duty free operators in Europe) with an option for Heinemann to purchase an additional 15% for up to 30 months subject to certain conditions for an aggregate sum of up to EUR52.21m.
  • Heinemann’s investment in DFZ Capital also signifies the start of its strategic partnership with DFIL, where it aims to 
    1. maximise product margins and range, and 
    2. transfer knowhow of global travel retail business. 
  • Through better execution, we expect better cost management and efficiencies to kick in and improve margins going forward.

Stock's fair value at S$0.52 based on PE. 

  • We value DFIL at 20x FY18F PE, which is within peer average and 1x PEG. 
  • Fair value works out to S$0.52 per share, which translates to a 23% upside from the current price.

Return *: 1
Risk: Moderate
Potential Target 12-mth* : 12-Month S$ 0.52 (23% upside)

Alfie YEO DBS Vickers | Andy SIM CFA DBS Vickers | http://www.dbsvickers.com/ 2016-09-26
DBS Vickers SGX Stock Analyst Report NOT RATED Maintain NOT RATED 0.52 Same 0.52

*This Equity Explorer report represents a preliminary assessment of the subject company, and does not represent initiation into DBSV’s coverage universe. As such DBSV does not commit to regular updates on an ongoing basis. The rating system is distinct from stocks in our regular coverage universe and is explained further on the back page of this report.