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How Duty Free International Achieved Over 100% Profit Growth In Q2 2026 · Investor Exchange

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  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
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  Welcome back to the Deep Dive. Today, our mission is to really dig into a stack
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  of financial statements.
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  We're trying to solve a bit of a financial mystery, actually.
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  We're plunging into the interim results for Duty Free International Limited.
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  You probably know them as DFIL. This covers the six months ending August 31st, 2025.
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  So that's the first half of their 2026 financial year. That's right.
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  And Defi-L, well, most people think of them for their core business.
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  Retail, wholesale, distribution of duty-free stuff, non-dutiable merchandise,
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  too. Perfume and liquor at the border, basically. Pretty much.
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  But, and this is important for our conversation today, they're not just that.
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  They've also got interest in property management and, believe it or not, oil palm cultivation.
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  Okay, so a bit more diversified than I might have initially thought.
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  Exactly. And that diversity is, I think, central to what we're seeing here.
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  Because these numbers, well, they show a company that looks like it's right
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  in the middle of a pretty significant strategic pivot.
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  You look at the profit and loss, you see this dramatic turnaround.
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  But our job really is to get behind those headline figures, understand the why,
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  what actually caused this shift, and what's management signaling for the future. Right.
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  Let's start with that headline number because it is pretty staggering.
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  Comparing this six-month period to the same time last year, DFIL went from being
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  in the red to, well, solidly in the black. It's a really remarkable swing, yeah.
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  For the first half of the previous financial year, so 6M FY 2025,
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  they posted a loss before tax.
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  Small, maybe, but still a loss just under a quarter million ringgit.
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  Fast forward to this period, 6M FY 2026, and boom, A profit before tax of around RM 6.4 million.
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  Strong profit. So doing the math quickly, that's a positive swing of more than
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  RM 6.6 million in profit just in one year.
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  Precisely. RM 6.6 million improvement. Which sounds fantastic,
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  obviously. But here's the kicker, the main puzzle piece we need to figure out.
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  Their revenue was essentially flat. Group revenue for these six months,
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  just under RM75 million.
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  But that's actually down slightly, less than 1% compared to the year before.
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  How do you suddenly find an extra
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  RM6.6 million in profit when your sales haven't really gone anywhere?
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  That's the million dollar question, isn't it? Or the 6.6 million ringgit question, I suppose. Yeah.
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  It really points towards a story about financial discipline,
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  about controlling costs.
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  But before we dive fully into the costs, it's worth noting one potentially crucial
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  detail in the revenue story.
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  While the six-month total was flat, their second quarter, Q2 FY 2026,
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  actually showed some real strength.
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  Ah, right. So it wasn't completely stagnant throughout the period.
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  No, not at all. In that second quarter, revenue actually jumped 14.5 percent
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  compared to the same quarter last year.
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  Management put this down to increase customer demand. So there was some positive
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  momentum there. OK, fair point.
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  But zooming back out to the full six months, your point stands.
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  That big RM 6.6 million profit jump didn't come from just selling more stuff overall.
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  Definitely not from organic top line growth across the whole period.
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  No, it came from fixing things, plugging leaks, you could say,
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  that were dragging down the bottom line previously.
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  All right. So if sales weren't the hero here, we need to look at the expenses.
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  Where did the money not go this year compared to last? Let's start with the
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  biggest piece of that turnaround.
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  Where did that roughly R and 6 million in improvement come from?
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  OK, so we can really pin it down to two main areas.
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  First, a dramatic reduction in risk, specifically currency risk.
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  And second, some pretty aggressive cost control on the operational side.
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  The single biggest factor, though, was definitely de-risking against foreign exchange volatility.
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  And this, this is where it gets really interesting, I think.
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  Go on. Forex losses can be brutal.
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  They can. And what's truly fascinating here is how they practically wiped out
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  their unrealized foreign exchange losses.
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  Last year, 6MFY 2025, the group reported an unrealized forex loss of nearly RM6.3 million.
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  A huge hit. Ouch. This year, for the same six-month period, that loss was just RM268,000.
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  Tiny in comparison. Wow. So just that reduction alone, that's about RM6 million
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  right there. That basically explains most of the profit swing we saw.
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  Exactly. It accounts for the vast majority of the turnaround.
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  It's like finding a massive hole in your boat's hull and finally managing to patch it up properly.
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  That's a great analogy. But how did they manage that? Was it just
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  luck with currency movements, or was it something they actively did?
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  Oh, it was definitely active management, no question.
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  DSIL made a very clear strategic choice to significantly cut down their exposure to foreign currencies.
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  Think about this. A year ago, August 31st, 2024, they were holding about RM
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  93.5 million worth of foreign currencies on their books.
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  Okay, quite a bit. Yeah. Now, fast forward to August 31st, 2025.
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  They'd converted most of that into Malaysian ringgit. Their foreign currency
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  holdings were down to only about RM14.3 million.
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  So they shifted roughly RM80 million at a foreign currency exposure in just 12 months.
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  That is a major strategic move.
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  Did they mention if they took a hit on the conversion itself,
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  or was it just about stopping future potential losses?
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  The report focuses on the outcome that dramatically reduced volatility.
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  They clearly decided the stability was paramount. They executed this huge conversion
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  specifically to minimize the impact of future currency swings.
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  They effectively chose certainty, or less uncertainty anyway,
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  over the potential gamble of currency gains.
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  And looking at that profit swing, you'd have to say it paid off handsomely for their P&L stability.
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  Okay, so stabilizing the financial ship was priority number one.
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  But you mentioned the second factor, tightening the belt operationally. Absolutely.
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  They were definitely doing that too. If you look at operational efficiency,
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  Employee benefits expenses, basically salaries and related costs,
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  dropped by RM 1.4 million over the six months.
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  RM 1.4 million, how much is that as a percentage?
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  That's an 18.3% decrease compared to the same period last year.
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  Which is, you know, quite significant. It suggests some serious focus on cost
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  control, maybe streamlining how they allocate resources within the company.
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  Right, so less forex risk, lower staff costs.
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  That explains the profit jump. But wait, there was one cost that went the other
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  way, wasn't there? Something spiked. Oh, yes. Good catch.
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  Professional fees. Those actually more than doubled, jumping over 100% to about RM1.38 million.
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  Which sounds bad initially, but the report gave a reason, right?
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  It wasn't just uncontrolled spending. Correct.
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  The explanation was that these fees were incurred for specific corporate exercises.
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  And this isn't necessarily a negative. In fact, it's a really key clue.
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  It suggests the company is using its newfound financial stability to actively reshape its future.
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  Okay, so those fees are basically the cost of making big strategic changes.
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  That seems to be the critical link, yes.
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  And before we jump into what those strategic moves are, we have to underscore
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  how important that financial cleanup was.
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  That stability allowed them to generate really strong operating cash flow.
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  They reported a net cash inflow from operations of over RM 11.4 million in these
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  six months. And how does that compare to last year?
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  Last year, same period, they had a cash outflow from operations of about RM 1.3 million.
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  So there's a huge turnaround in cash generation too.
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  Better working capital management, improved inventory turnover,
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  all contributing. And cash, as we know, is the fuel for growth and change.
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  They've now got that fuel.
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  And it looks like they're putting that fuel straight into the engine of diversification.
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  The first big strategic shift seems to be moving into the automotive sector.
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  That's right. They put down a pretty substantial refundable deposit,
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  RM17.5 million for a proposed acquisition.
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  They're looking to buy a company called United Industries Holdings,
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  D, it's D and BHD, for RM175 million.
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  RM175 million. That's a serious investment. What does this company do?
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  It's a complete shift from their core business.
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  This company manufactures and supplies automotive components.
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  So DFIL is aiming to get into that supply chain. Wow.
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  From duty-free retail to car parts, that's quite a leap. Why automotive? What's the rationale?
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  The official line in the documents frames it as a move designed to generate
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  a stable new revenue stream.
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  The thinking, presumably, is that automotive components might be less volatile,
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  maybe less sensitive to border traffic or tourism slumps compared to their traditional
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  retail business. Seeking stability.
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  Makes sense. Is this deal done? Not yet.
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  Because it involves a controlling shareholder, it needs approval from the other
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  shareholders at an extraordinary general meeting in EGM.
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  And that's scheduled for a very important date, October 28th, 2025.
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  Okay, October 28th. Got it. So that's one major strategic pillar.
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  What's the other one? You mentioned property earlier.
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  Yes. The second major strategic move is in property development,
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  specifically down in Johor.
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  It's less immediate than the potential acquisition, but potentially much larger in scale long-term.
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  We see their investment in something called development rights,
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  increased by RM5 million during this period.
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  That increase reflects costs like stamp duties and, again, professional fees
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  associated with transferring a land title for a huge project. How huge are we talking?
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  Well, their subsidiary, KMSB, has entered into a conditional joint development
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  agreement for land in Stulanglot, Johor.
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  The plan isn't small. They're looking to build two large blocks containing a
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  total of 1,260 service departments, plus some retail lots.
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  1,260 apartments. That's massive.
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  What's the potential value here? The project's total estimated gross development value, GDV.
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  Basically, the total expected sales value is projected at over RM478 million.
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  Whoa. Okay, let me process that.
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  RM478 million GDV. That's more than six times DFIL's entire revenue for the
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  last six months, just from this one project. Exactly. It puts the scale into perspective.
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  Now, Defial's subsidiary isn't getting all of that, obviously.
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  Their share, their entitlement from the project is estimated at RM83.57 million.
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  Still a very significant number for them. Absolutely. But this is a long game,
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  right? When would this project actually happen? Definitely a long-term play.
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  Completion isn't expected until the fourth quarter of 2029. So what you see
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  is Defial trying to balance things, potentially getting immediate,
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  stable income from the automotive venturer while simultaneously building massive
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  long-term asset value through this major property development.
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  It paints a picture of a company really trying to transform itself.
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  But we can't ignore the challenges in their existing core business, can we?
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  Especially with that land acquisition issue. No, you're right.
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  The contraction of the traditional retail side is real. And a big part of that
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  seems driven by that compulsory land acquisition you mentioned.
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  Which affected their outlet where?
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  That was the Bukit-Kaiuhitam outlet up near the Thai border.
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  That compulsory acquisition forced them to close it back in November 2024.
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  And obviously closing a major outlet like that is going to impact your top line
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  revenue in the following periods, which we saw. The government paid compensation, though. Yes.
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  DFIL received RM69.6 million in compensation, which certainly wouldn't have
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  hurt their cash position or balance sheet strength during this period.
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  But they're not happy with that amount. Apparently not.
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  They're contesting the amount awarded. That explains why there are ongoing legal
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  proceedings mentioned.
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  The case has been referred to the high court for a land reference hearing.
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  And interestingly, guess when the next case management hearing is scheduled.
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  Let me guess. October 28th, 2025.
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  Bingo. Same day as the crucial EGM for the automotive acquisition.
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  October 28th is shaping up to be a really pivotal day for DFL's future direction.
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  Definitely a date for investors to circle on their calendars.
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  Okay, so putting it all together.
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  They've achieved this impressive profit turnaround through financial discipline,
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  and they're making big bets on automotive and property.
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  But what does management actually say about the immediate future or the next
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  12 months? Is the outlook rosy?
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  Not exactly rosy, no. The management commentary is actually quite cautious,
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  particularly regarding the traditional retail segment.
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  They're bracing for challenges. Like what, specifically?
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  They explicitly mention persistent inflationary pressures, rising costs both
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  for products they sell, and just operating costs in general.
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  They also anticipate seeing a shift in consumer behavior, suggesting people
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  might adopt a more prudent and conservative approach to spending.
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  So belt tightening by consumers could hit their retail sales.
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  That seems to be the concern.
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  Plus, they note that the negative impact from the Bukit-Kai-Hidam outlet closure
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  will continue to be a drag on performance in the near term.
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  Okay, so the Financial Foundation looks much more stable now,
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  but the actual trading environment for their core business sounds pretty tough.
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  So what's their strategy to navigate this? just keep cutting costs.
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  Cost control is definitely part of it.
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  They talk about emphasizing rigorous cost control measures, optimized resource
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  allocation, and enhanced strategic planning.
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  So, continuing the discipline that got them this profit turnaround.
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  Makes sense. Keep doing what worked. Absolutely.
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  They clearly attribute this year's profit improvement to that discipline,
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  and they plan to maintain it.
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  But the official outlook makes it crystal clear. Their future resilience really
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  depends on those strategic pivots we discussed.
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  The commentary explicitly states that the proposed automotive acquisition is
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  expected to generate that stable new revenue stream they need.
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  This is positioned as key to reinforcing the group's overall performance and,
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  importantly, its long-term resilience against these retail headwinds.
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  Okay, so let's try and synthesize this whole deep dive.
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  The big takeaway seems to be that DeFiL pulled off a really impressive profit
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  turnaround in the first half of FY2026.
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  But crucially, it wasn't because they sold loads more duty-free goods. Not primarily, no.
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  It was mainly achieved by essentially cleaning a house financially.
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  They achieved a fundamental stability by slashing their exposure to currency
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  risk, that was the big one, and by cutting operational expenses like employee
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  costs by nearly 20%. That's a perfect summary of the how.
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  And the what now is just as interesting. The company is, you know,
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  visibly mid-metamorphosis. It feels like it's actively shifting its identity. Thank you.
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  Moving away from being potentially volatile border retailer,
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  a business heavily influenced by things like travel patterns,
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  consumer spending, and even government land decisions, and moving towards being
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  a more diversified asset developer and operator. Right.
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  Locking in what they hope are stable, predictable revenues through that proposed
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  RM175 million move into automotive components,
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  while simultaneously building potentially massive long-term value from that
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  Johor property development, the one with the almost half-billion ringgit GDV.
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  Two very different, but potentially complementary strategic bets.
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  So now that you have this full picture, here's something for you to really mull over.
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  We've got this crucial shareholder EGM on October 28th, 2025,
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  which could greenlight the shift into automotive.
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  We've got the property development stretching out towards 2029.
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  Will DFIL's market valuation soon start reflecting its past as a duty-free retailer?
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  Or will it begin to price in its potential future as this diversified entity
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  built on a newly stabilized financial foundation? You've got the information now. Go explore.