DBS raises DFI Retail Group Holding's target price, citing strong potential to grow earnings
[SINGAPORE] DBS bank on Monday (Jun 9) raised its target price for DFI Retail Group from US$3 to US$3.60 and maintained its 'buy' rating, citing a stronger and more focused business strategy.
This represents an upside of 28.6 per cent from the DFI's previous closing price of US$2.80 on Monday (Jun 9).
The bank analysts noted that DFI has been streamlining its operations by exiting low-margin businesses, especially in South-east Asia's food segment, and selling its stakes in associates such as Yonghui and Robinsons Retail Holdings (RRHI).
These moves have given the company greater control over its operations and improved its ability to boost return on capital employed and total shareholder return, the analysts said in a report.
As at 2.27pm on Tuesday, shares of DFI retail group were down 1.43 per cent, or US$0.04 at US$2.76.
However, for Q1 ended Mar 31, 2025, the group's underlying profit fell 18 per cent compared with the same period a year ago, due to the divestment of Yonghui Superstores last year. The Chinese supermarket operator contributed US$23 million in earnings in the corresponding period a year ago.
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Excluding the divestment, the underlying profit of the mainboard-listed group rose 28 per cent for Q1 compared with a year ago.
Looking ahead, DBS sees strong potential for DFI to grow earnings, driven by improving operational efficiency. They estimate gains of over US$100 million, noting that even a modest 0.1 percentage point rise in operating margin could boost FY2026 net profit by about 2.2 per cent.
DBS has also raised its core earnings forecasts for DFI by 4 per cent for FY2025 and 3 per cent for FY2026, reflecting the impact of recent divestments and a solid first quarter.
For FY2025, DBS also expects earnings to reach US$269 million – near the upper end of management's guidance – helped by stronger performance from Maxim's and lower interest expenses.
Said the DBS analysts: 'For FY2026, we anticipate further margin expansion for the remaining businesses and continued interest savings, driven by a full-year impact from lower debt levels and reduced lease liabilities following the sale of DFI's SG Food business.'
On Mar 24, DFI announced the divestment of its Singapore Food business to Macrovalue – the same party that acquired its Malaysia Food operations in 2023. The transaction is valued at S$125 million and is expected to be completed by Q4 2025.
By FY2026, further margin improvements and savings from lower debt and lease obligations, after selling the Singapore food business, are expected to outweigh the US$14 million earnings loss from the RRHI stake disposal.
Rather than pursuing costly mergers and acquisitions activity, DBS believes DFI would be 'more prudent and value-accreditive' in focusing on operational improvements and maintaining a steady special dividend payout of US$0.10 annually until better investment opportunities arise.
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