Retail │ Singapore DFI Retail Group │ March 12, 2025
Turning the corner
DFI Retail Group: Upgrade to Add with Higher Target Price
CGS International, March 12, 2025 – We upgrade DFI Retail Group (DFI) from Hold to Add with a higher target price of US\$2.71 (13.2x FY26F P/E) on improving profitability, stronger balance sheet and higher dividend yield.
Highlights:
- Portfolio optimization and strong cost controls led to +30bp underlying operating margin expansion in 2H24.
- DFI announced new FY25F guidance of +2% organic revenue growth and core net profit between US\$230m-270m (up 15-35% yoy).
- It guided for 60% dividend payout ratio to sustain in FY25F; we see potential for special dividend in FY25F from better profits and gearing improvement.
2H24: Solid Profit Growth Amid Cost Optimization
DFI Retail’s 2H24 underlying net profit of US\$125m (+3% yoy) was in line with our and Bloomberg consensus expectations. Underlying operating margin grew 30bp yoy in 2H24 to 3.9% as portfolio revamp in Food (grocery retail) and cost savings in Home Furnishings offset Health & Beauty’s mix shift towards lower-margin Southeast Asia.
Cautiously Optimistic on Topline, Raise Profit Estimates
DFI targets 2% organic revenue growth in FY25F, but we remain slightly more cautious with our +1.5% forecast. We expect underlying operating margins to expand by 40bp over FY24-27F as a recovery in Food and Home could offset operational deleverage in Convenience and mix shift in Health & Beauty. As such, we lift our FY25-26F EPS by 15-16%. We see FY25F underlying net profit of US\$263m (+31% yoy), at the higher-end of DFI’s US\$230m-270m guidance.
Efficient Capital Allocation is a Key Driver
DFI’s plan to repay debt using most of the c.US\$620m from its Yonghui stake sale should drive c.US\$40m in annual interest savings, in our view. We forecast FY25 net gearing to improve to -6.7% vs. 78.6% at end-FY24. DFI also guided for 60% payout ratio to sustain in FY25F, translating a 5.5% dividend yield. We see potential for a special dividend in FY25F, from better profits and stronger balance sheet.
Upgrade to Add with a Higher Target Price
We upgrade our call to Add from Hold as we see multiple re-rating catalysts for the stock, including faster recovery of its Hong Kong supermarket sales, growth in Southeast Asia and stronger-than-expected margin uplift from cost efficiencies. Our TP rises to US\$2.71, now based on 13.2x 2026F P/E (c.1 s.d. below its five-year historical 12M forward P/E average).
Global Peer Comparison
DFI Retail Group is currently trading at 10.7x 2025F P/E and 10.2x 2026F P/E, cheaper than the regional peer average of 15.6x 2025F P/E and 13.7x 2026F P/E.
Company |
Ticker |
Recommendation |
Price (lcl curr) |
Target Price (lcl curr) |
Market Cap (US\$ m) |
P/E (x) 2025F |
P/E (x) 2026F |
P/BV (x) 2025F |
ROE (%) 2025F |
Div Yield (%) 2025F |
DFI Retail Group |
DFI SP |
Add |
2.10 |
2.71 |
2,843 |
10.7 |
10.2 |
4.93 |
45.6% |
5.5% |
Sheng Siong Group |
SSG SP |
Add |
1.64 |
1.90 |
1,852 |
17.2 |
16.6 |
4.27 |
25.6% |
4.1% |
Sun Art Retail Group |
6808 HK |
Add |
1.98 |
2.30 |
2,431 |
41.8 |
23.7 |
0.81 |
1.9% |
1.0% |
Yonghui Superstores |
601933 CH |
Hold |
4.90 |
5.80 |
6,148 |
60.6 |
48.6 |
8.63 |
14.3% |
0.0% |
MINISO Group Holding Ltd |
9896 HK |
Not Rated |
39.00 |
N/A |
6,274 |
13.5 |
11.1 |
3.47 |
27.4% |
3.4% |