DFI Retail Group Holdings Ltd. (DFI SP) operates in over 12 markets, focusing on four divisions: food, health & beauty, home furnishings, and restaurants.
- Stock Data:
- Share price: US$2.03
- Target price: US$2.57 (indicating a 26.6% upside).
- Market Cap: US$2.74 billion.
- Bloomberg ticker: DFI SP.
- Major shareholder: Jardine Matheson (77.5%).
2. Recent Developments
- Divestment of Yonghui Superstores:
- DFI has sold its 21.1% stake in Yonghui Superstores to Miniso Group for RMB 4.5 billion (US$637 million).
- This sale will result in a US$128 million write-down for the current fiscal year, which the company views as positive due to Yonghui’s prior losses.
- Expected positive outcomes include focusing on higher returns and the possibility of a special dividend.
3. Financials and Performance
- Earnings Performance:
- 2024 Financial Forecasts:
- Net Turnover: US$9.2 billion.
- EBITDA: US$1.1 billion.
- Net Profit: US$186 million, with a 2% net margin.
- 2025 Projections:
- EBITDA is expected to grow to US$1.29 billion.
- Operating profit will rise to US$363 million.
- Profit Margins:
- EBITDA margin for 2024 is 10.4%, with projections showing growth to 12% by 2025.
- Leverage:
- DFI has reduced net debt by 38%, resulting in a net debt/equity ratio of 0.58x as of 1H 2024.
- Debt reduction remains a priority following the sale of Yonghui.
4. Key Strategic Moves
- Focus on High-Growth Markets:
- DFI is shifting away from low-margin markets like China, Malaysia, and Indonesia, prioritizing markets like Hong Kong and Singapore.
- Expansion in convenience stores and investment in ready-to-eat (RTE) meals in South China is proving successful, contributing 40% to sales, with plans to expand further.
- Collaboration with 7-Eleven Japan to introduce new products into its Asian businesses, including QSR (Quick-Service Restaurant) opportunities.
5. Valuation and Recommendation
- DFI maintains a Buy rating with a target price of US$2.57.
- This is based on a 16.7x price-earnings ratio, which is 1 standard deviation below its average PE over recent years.
6. Key Financial Ratios
- Debt Metrics:
- Debt to equity is projected to drop from 36.5% in 2024 to 30.6% in 2025.
- Interest cover ratio is strong at 18.2x for 2024.
- Profitability:
- Return on Equity (ROE) is expected to increase from 11.6% in 2024 to 12.9% by 2026.
This report offers a comprehensive analysis of DFI’s strategic movements, financial forecasts, and market outlook, with strong emphasis on its exit from challenging markets and the expansion into higher-margin segments.
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