Latest / Investor Exchange / Duty Free International Limited Quarterly Report: May 2025 Financials

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Duty Free International Limited Quarterly Report: May 2025 Financials · Investor Exchange

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  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
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  Ever wonder what goes on behind the scenes of a company's financial report?
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  It's not just numbers on a page. It's really more like a story, isn't it?
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  A story about challenges, maybe some wins, and definitely where they're trying to go next.
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  Today, we're doing one of our deep dives. We're looking at Duty Free International
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  Limited DFIL, specifically their latest condensed interim financials for the
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  three months ending May 31st, 2025.
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  Our mission really is to get past just the surface level stuff.
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  We want to understand DeFiL's financial health, figure out why the numbers move
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  the way they did, and maybe get a sense of what the future holds.
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  We'll look at their P&L, balance sheet, cash flows, and importantly, those notes.
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  That's often where the aha moments are hiding. Okay, let's unpack this.
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  Right. And maybe the first thing that jumps out looking at the profit or loss
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  is the revenue. DFIL reported revenue of RM 32.2 million for this first quarter
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  of their fiscal 2026. Okay.
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  Now, compared to the same time last year, that's actually down.
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  It's a 16% decrease from RM 38.3 million.
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  And that's not just some random wobble. It coins to something pretty significant.
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  16% is quite a drop. So what's the story there? Why the dip?
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  Well, the report is quite clear on this one. It directly attributes the decline
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  primarily to the closure of their Bukit Cayuhitam retail outlet back in November 2024.
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  Ah, right. That was a compulsory land acquisition thing, wasn't it?
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  Exactly. So you're seeing the direct financial fallout from losing a major retail
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  spot. Yeah, that makes sense.
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  A big hit to the top line. But here's the curious part.
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  If revenue dropped that much, how on earth did their profit before tax actually go up?
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  That feels backwards. It does seem counterintuitive, doesn't it?
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  But you're right. Despite that 16 percent fall in revenue, profit before tax
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  did increase by 5.4 percent.
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  Actually, it hit RM 2.3 million this quarter compared to RM 2.2 million last year.
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  OK, so the big question becomes what managed to offset that pretty significant
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  revenue drop? What's propping up the profit?
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  Exactly. Let's dig into that. What were the key things driving that profit increase?
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  Was it just cutting costs or something else? It seems to be a combination of
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  factors, looking at the details.
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  There are really three main contributors highlighted.
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  First, and this is a big one, a much lower net foreign exchange loss. Oh, FX.
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  Okay. Yeah, the unrealized loss this quarter was down by, get this,
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  93.5%. Massive change. Wow.
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  How? The report says the group actively reduced its exposure to foreign currency deposits.
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  Basically, they converted a lot of it into Malaysian ringgit.
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  So, you know, less vulnerability to currency swings.
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  Shows some active risk management there. Right, shifting to the local currency
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  to reduce that risk. Seems like it paid off this quarter.
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  What else? Second, employee benefit expenses were down quite a bit,
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  actually 23.1%, which saved them about RM 0.9 million.
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  And that's linked to the outlet closure too, I assume? Lower headcount?
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  Directly linked, according to the report.
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  Fewer staff needed after the Bukit-Cayuatam complex closed.
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  Makes sense, operationally. Okay, so lower FX losses, lower staff costs.
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  What was the third thing? Third was higher other income.
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  It saw a decent jump, 20.4%, adding about half a million ringgit.
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  This came from a few places. They earned more interest from banks,
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  RM 1.8 million versus RM 1.2 million last year.
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  They also had a reversal of inventory write-downs.
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  So stock they'd previously marked down in value, they could now bring back some
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  of that value. That was about RM 1.2 million. Recovering value. Interesting.
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  And a small gain, RM0.1 million, from selling off some property, plant, and equipment.
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  So several smaller things adding up under other income. So it really sounds
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  like a story of, well, tight cost control.
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  Being smart or maybe a bit lucky with the currency exchange,
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  and then this extra income offsetting that big revenue hole left by the store closure.
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  How does this picture translate into their cash flow? Did cash follow the profit?
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  Good question. Looking at cash flow from operations, it actually held up,
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  it saw a small increase actually, from RM 3.4 million last year to RM 3.8 million this quarter. Oh, okay.
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  The report attributes this to using less cash for working capital this time
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  around. So yeah, efficiency seems to be a theme. And what about investing activities.
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  I noticed that number looked quite different year on year. Less cash going out. Yes.
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  Significantly less cash used in investing. It was RM 2.9 million this quarter
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  compared to RM 7.8 million in the same period last year.
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  Why the big difference? The main reason is that last year in the first quarter,
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  they had a big outlay, RM 9.5 million for acquiring some development rights.
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  That didn't repeat this year. Ah, okay. A one-off last year. Exactly.
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  Although they did spend RM 5.0 million this quarter on costs related to a land
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  title transfer for a different development.
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  So still some investment spending, just less overall compared to last year's specific acquisition.
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  Speaking of land and deals. Yeah.
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  Wasn't there some news about them finally getting paid for a really old debt,
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  something significant? Yes, absolutely.
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  And that's a really positive point, although technically it happened just after
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  this reporting period ended on June 18th.
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  They received full repayment of RM 20.0 million from Burjaya Waterfront SDN
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  BHD or BWSB plus interest. 20 million.
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  Wow. What was that from? It relates way back to a sale consideration from 2013.
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  So, yeah, a very longstanding receivable.
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  Getting that fully settled is a pretty good news for their balance sheet.
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  Definitely. Like finding a huge amount of cash down the back of the sofa after a decade.
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  Yeah, something like that. A very big sofa. It certainly boosts their liquidity.
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  OK, so that's a look back the quarter. Now, looking forward,
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  what's the company saying? What's the outlook? The report mentioned challenges, right? It did.
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  The group expects the retail environment to stay challenging for the rest of
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  this financial year, FY2026.
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  They're pointing to rising cost products, operating expenses,
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  plus ongoing inflation, and importantly, a shift they're seeing in how consumers are spending.
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  People being more careful with their money. Seems so.
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  More prudent behavior, as they put it. And of course, that Bukit Caillou hit
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  on closure continues to drag on revenue and profit compared to previous years.
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  So, yeah, headwinds are definitely expected. A tough picture indeed.
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  So how are they planning to navigate this? What are the strategic priorities?
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  The focus seems to be very much on efficiency and effectiveness internally.
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  You know, the classic responses.
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  Rigorous cost control measures are mentioned again. Optimizing how they use their resources.
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  Refining their strategic planning to adapt. Standard playbook for tough times. Pretty much.
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  But crucially, they also state they're actively looking for and pursuing new
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  business opportunities.
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  They aren't just hunkering down. They're trying to find new ways to grow.
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  Which brings us back to those development rights you mentioned earlier,
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  the ones they didn't spend big on this quarter but did last year.
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  What's the plan there? Is that one of the new opportunities?
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  That seems to be a major one. This is where it gets potentially quite interesting for their future.
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  DFIL's subsidiary, KMSB Kalana Mega ASDN, BHD, they're a part of a joint development
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  project. It's on a piece of land down in Johor Bahru.
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  Okay. What kind of project? It's pretty substantial.
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  Two blocks plan to include 860 service departments, about 10 retail lots, and parking.
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  And KMSB's entitlement, their share is 18% of the total net saleable area.
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  The estimated value of that share, RM 83.57 million. 83 million.
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  Yeah, that's significant.
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  A big move away from just duty-free retail. It's definitely a diversification play.
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  A potential new and quite large revenue stream if it all comes together.
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  When's that project supposed to kick off? And are there any hurdles mentioned?
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  Big projects always have hurdles. They expect it to start in the third quarter
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  of 2025, so relatively soon.
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  As for hurdles, well, the report notes the land title transfer was done back
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  in March 2025, but the joint development agreement had conditions.
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  The deadline for meeting those conditions was initially June 9th,
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  2025, but it's been extended for six months to December 9th, 2025.
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  Ah, okay. So still some things to finalize there. Shows these things take time.
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  Exactly. It highlights the moving parts in these large-scale developments.
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  And quickly, back to the Bukit Cayuhatam land, the one that was compulsorily acquired.
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  Is that chapter fully closed now or is there still fallout? Still ongoing, actually.
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  They were awarded compensation, RM 69.6 million. But DFIL wasn't satisfied with
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  that amount. They felt it was too low. So they filed an objection.
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  That objection has now been referred to the high court in ALOR CETAR.
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  Case management dates were set for July, just recently, in fact.
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  So, yeah, it's an active legal process. They're still fighting for more compensation.
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  Got it. Still battling that one out in court.
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  Okay, one last thing, dividends. Any good news for shareholders on that front?
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  Yes, there was. DFIL declared a first interim cash dividend.
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  It's 0.00165 per share for this period.
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  Singapore dollars, right? Yeah. How does that compare to last year?
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  It's actually an increase.
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  Last year, for the same period, it was 0.000 none cents per share.
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  So, a higher dividend despite the lower revenue and the challenges. That seems optimistic.
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  You could interpret it that way. Perhaps a signal of management's confidence
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  in their underlying profitability, their cost management, and maybe the cash
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  coming in, like that big receivable they just collected. Yeah.
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  So what does this all mean?
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  We've seen Duty Free International navigating, well, a really tricky quarter.
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  Revenue took a hit from losing that key outlet, no doubt about it.
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  But they still managed to nudge profits up. How?
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  Careful cost cutting, getting those FX losses way down, and that boost from other income.
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  We've also touched on their strategic
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  moves, getting that huge decade-old payment sorted is a big plus.
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  And then there's the future focus. this major joint development project in Johor
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  Bahru, which could be transformative alongside still fighting the legal battle
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  over the land compensation.
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  For you listening in, what really stands out here is definitely a complex picture, isn't it?
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  Company adapting, maybe forced to adapt, while also trying to plant seeds for future growth.
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  Which leaves us with this thought. As DFIL keeps tightening its belt operationally
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  while pushing forward with these big new ventures like the Johor Bahru development,
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  how will that dual focus play out over the next year,
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  especially in this volatile economy and with major outcomes both in property
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  development and in court still hanging in the balance.