The transacted value is 14% above DFI’s carrying value of US$247.7 million as of end-Dec 2024, implying a potential one-off gain of US$35 million. However, the company is expected to book a foreign exchange loss as a result of PHP depreciation against USD since the time of RRH share purchase.
Net-net, it expects to see a minor net non-trading loss. DFI’s stake in RRH contributed US$17 million to core earnings and generated US$10.6 million in dividends in FY2024.
According to DBS, “while the divestment was largely anticipated, the valuation premium surprised and reflects strong negotiation and execution by management.”
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Given management’s clear preference for being an operator rather than a passive investor, DBS believes that the divestment of the RRH stake had likely been in consideration for some time.
That said, credit is due for executing the sale at a 36% premium to the prevailing market price — a commendable outcome, according to DBS. “We expect RRH to contribute to core earnings for 4QFY2024 through to May 2025, amounting to an estimated US$17 million, in line with FY2024,” says DBS.
Accordingly, DBS believes that there could be upside to its current earnings forecast, driven by potential interest income from the US$283 million in sale proceeds. At a 3% annualised yield, this equates to about US$5 million over the remaining seven months of FY2025, representing about 2% of DBS’ above-consensus FY2025 core earnings forecast of US$259 million.
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“Overall, we view this as a strategically positive step. With the RRH stake sold, DFI’s operations are now almost entirely within management’s control, allowing for greater operational focus, improved performance stability, and more flexibility to drive revenue and margin initiatives,” says DBS.
Importantly, the transaction also enhances management’s credibility in executing value-accretive deals, supporting confidence that future M&A activity will align with its long-term return on capital employed and total shareholder return objectives.
CGS CIMB too is standing pat on its "add" recommendation and US$3.00 target price on DFI following the divestment announcement.
"We think DFI’s divestment of its 22.2% stake in RRH for about US$283 million seems fair at an implied valuation of 11.2x FY2024 P/E," say anlysts Meghana Kande and Lim Siew Khee.
They note that the proceeds from RRH’s sale will be channelled to expand digital retail media, advance own brand innovation and enhance omnichannel capabilities across its key markets.
The analysts also note that since 2024, DFI has divested about US$1.2 billion of major assets, including PT Hero Indonesia, Yonghui Superstores and recently Cold Storage Singapore. "We think the divestment of RRH and Cold Storage Singapore built up a war chest for DFI to improve shareholder returns," say Kande and Lim, while believing that FY2025 DPS could go up to 16 US cents (5.8% yield), sssuming 60% of Cold Storage proceeds are used for special dividend.
"We note that DFI has also impaired about US$193 million of goodwill in FY2023-FY2024 for its Macau San Miu Supermarket and Cambodia Food Business. We believe these are primed for future monetisation," say the analysts.
Shares in DFI are trading at US$2.75 at 9.05am on June 2.
