UOB Kay Hian | 25 March 2025
DFI Retail Group Streamlines Operations, Focuses on Higher-Margin Segments
Retail Reinvention Continues With A Farewell To Food
DFI Retail Group Holdings (DFI), a leading consumer retail conglomerate, has announced the sale of its Singapore food business, including the Cold Storage, CS Fresh, Jason’s Deli, and Giant brands. This strategic move comes as the company continues to reshape its portfolio, doubling down on higher-return segments.
The timing of the sale, just three weeks after DFI reported its 2024 results, may have surprised some, but the rationale is clear. The food business had only recently returned to profitability in Q4 2024, with an operating margin of just 1.8% in 2024 and a projected expansion to 2% in 2025 – significantly lower than the group’s other divisions.
This divestment is part of a broader trend for DFI, which has been gradually withdrawing from the food business across the region. Over the past two years, the company has sold its Giant hypermarkets and supermarkets in Malaysia, as well as its minority stakes in Yonghui in China and Hero Supermarket in Indonesia.
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Positioning for Growth in 2025
Despite the sale of the Singapore food business, DFI’s overall growth targets for 2025 remain unchanged. The company has guided for 2% revenue growth and an underlying profit of US$230m-270m, implying a year-over-year earnings growth of 14-34%.
This growth is expected to come primarily from the health & beauty (H&B) and convenience store segments, as well as through optimizing the product mix to improve margins across the business.
Utilization of Sale Proceeds
The completion of the Yonghui divestment at the end of February 2025 has already turned DFI into a net cash company. With the additional S$125 million in proceeds from the Singapore food business sale expected in the second half of 2025, the company is well-positioned to continue paying down debt and potentially deliver higher-than-expected dividends to shareholders. Our current total DPS estimate for 2025 remains unchanged at US$0.103, implying a 4.9% dividend yield.
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A More North Asia-Focused Company
After the sale of its Singapore food business, DFI will derive a larger proportion of its revenue and profits from its north Asia operations. The company has stated that it will focus on investing in its higher-ROCE segments, such as H&B and convenience stores, which generate stronger operating profit margins.
In terms of future acquisitions, DFI has indicated that it will prioritize businesses that are accretive to its return on capital employed (ROCE), and will avoid taking minority positions in companies, as such investments can put the company’s shareholder returns in the hands of a third party.
Earnings Revision and Valuation
UOB Kay Hian has maintained its earnings estimates for DFI and has not factored in any transaction gains from the sale of the Singapore food business. The analysts have reiterated their BUY rating on the stock, with an unchanged target price of US$2.80, based on a target PE multiple of 16.3x, which is 1 standard deviation below the company’s average PE over 2019 to present, excluding the COVID-19 years.
Despite the recent divestments, DFI’s 2025 forward PE of 12.6x still represents a 37% discount to its regional peers, while offering a higher prospective dividend yield of 4.9% compared to the peer average of 3.0%.
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Key Catalysts and Risks
Potential catalysts for DFI’s share price include:
Continued sales momentum in the convenience store segment
Introduction of higher-margin ready-to-eat products
Accretive acquisitions that enhance ROCE
Monetization of the DFIQ media platform and data from the yuu loyalty program
Risks to the BUY rating include rising food costs and inflation affecting consumer spending, as well as competitive pressures from rivals leveraging advanced technologies and innovative business models.
