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What Investors Need To Know About Duty Free International Ltd’s Latest Results

Duty Free International Ltd (SGX: 5SO) announced its second quarter results yesterday. The company is the largest duty-free retailer in Malaysia and operates under the brand The Zon. Incidentally, Duty Free International happens to be a subsidiary of Malaysia-listed Altan Holdings Berhad, which is an associate of Berjaya Corporation. Berjaya is a Malaysia-based conglomerate that’s controlled by billionaire Tan Sri Dato’ Seri Vincent Tan, who also happens to be the owner of Cardiff City Football Club.

Coming to Duty Free International’s quarterly earnings, investors seem to be pleased with what they saw, judging from the company’s 3.5% jump in share price today.

Although there is a fear of household debt in Malaysia rising to dangerous levels in addition to uncertainties arising from the implementation of a Goods and Service Tax in the country next April, Duty Free International Ltd still recorded a 5.3% year-on-year increase in revenue to RM265 million for the six months ended 31 August 2014.

The top-line growth was mainly due to higher demand for its products as well as the opening of a new outlet at the Kuala Lumpur International Airport 2 (KLIA 2). Due to better control of its operating expenses, Duty Free International was able to grow its net profit from continuing operations by 22.6% year-on-year to RM24.0 million. The company had disposed of its hotel and ferry terminal businesses in the previous financial year.

Duty Free International ended its second quarter with a strong balance sheet; its net debt to equity ratio is only 5.3% as at 31 August 2014 (although, that’s an increase from a ratio of 2.2% seen on 28 February 2014). Therefore, the company should be quite safe from any slowdown in Malaysia’s economy should it happen.

There’re two other important issues investors have to know regarding Duty Free International.

Firstly, the company currently has convertible warrants outstanding which amounts to about 11% of its share count –that’s potential heavy dilution which existing shareholders should consider. The next issue deals with management’s remarks that “the Group’s operating conditions will be challenging in the remaining quarters of the financial year ending 28 February 2015.” Despite Duty Free International posting healthy top- and bottom-line growth in the first six months of its current fiscal year, investors might want to keep a closer watch on the company’s ability to grow in the future given management’s outlook.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.