“The higher margin Health & Beauty and Convenience businesses are expected to be the main growth engines for both revenue and earnings. The group is targeting core earnings of US$310 million to US$350 million by FY2028, implying a 6% to 10% CAGR from our above-consensus FY2025 forecasts,” says Chee.
Chee points out that Health & Beauty revenue growth will be underpinned by franchise-led store expansion in Indonesia and a stronger push into the fast-growing wellness category.
“For Convenience, the company is upgrading its higher margin ready-to-eat offering, with expanded fresh hot food offerings and ongoing product innovation. It also sees substantial white space for store expansion in Tier 2 cities in South China,” comments Chee.
With that, he is maintaining his “buy” call and lifts his target price from US$3.90 to US$4.50 on a higher valuation peg of 21.1 times P/E ratio, which is +0.5 standard deviation of its 10-year average, supported by well-defined earnings targets, sensible strategy and higher dividend payout ratio.
Meanwhile, in his report dated Dec 4, Alfie Yeo of RHB Bank Singapore is maintaining his “buy” call on DFI Retail and raise FY2026 and FY2027 earnings by 2% and 1% respectively, based on management’s new FY2028 earnings guidance on store network expansion, better margins, and operating efficiency.
“Management projects FY2025 to FY2028 sales growth (excluding the recently divested Singapore food business) at 2% to 3% CAGR, driven by the health & beauty and convenience store (CVS) segments.
Yeo points out that DFI Retail is targeting FY2028 operating margin expansion to between 5% and 7% from 3.9% in FY2024. Management will look to raise FY2028’s return on capital employed to around 15% from between 9% and 9.5% in FY2025.
“Cash raised from the sale of stakes in Yonghui Superstores and Robinson’s Retail Holdings will now provide DFI with the financial flexibility to conduct strategic M&A activities,” comments Yeo.
Hence, Yeo raises his target price from US$4.25 to US$4.50 after he rolls his valuation from 21 times blended FY2025 and FY2026 P/E ratio to FY2026’s earnings base.
Finally, Lim Siew Khee and Meghana Kande of CGS International highlighted in their report dated Dec 4 that the sales targets set by DFI Retail were largely in line with what they had already baked into their FY2025 to FY2027 estimates.
“However, management expects superior margins across all segments, which we think backs DFI Retail’s higher dividend payout guidance of 70% vs. 60% previously,” states Lim and Kande.
In their view, DFI Retail could be looking for inorganic opportunities within high-growth segments like Health & Beauty (likely Indonesia, Vietnam) and Convenience (China).
“We believe DFI Retail’s 25% target leverage ratio gives it funding flexibility to pursue majority-stake acquisitions that meet its 15% ROCE threshold and complement existing formats. If a deal does not materialise within 24 months, DFI Retail plans to return cash to shareholders, likely through a special dividend rather than share buybacks due to DFI’s low liquidity,” says the CGS International team.
Both Lim and Kande are reiterating their “add” call on DFI Retail for its potential margin expansion and net profit growth over FY2025 to FY2028. They raised their target price from US$4.00 to US$4.50 following the 6% to 10% hikes in their EPS estimates for FY2026 to FY2027, while based on 18 times FY2027 P/E ratio, which is +2.0 standard deviation above 5-year mean.
As at 11.03 am, shares in DFI Retail are trading 15 US cents higher or 3.82% up at US$4.08.
