The way Loh sees it, the guidance reflects a disciplined shift toward higher returns, stronger cash generation, and improved capital efficiency with targets showing a steady uplift in operating margins, underpinned by savings of US$30 million-US$35 million by FY2028.
The company has indicated different strategies for its diversified business portfolio. Its health and wellness brand Guardian is being repositioned as a higher-margin, expert-led retail model anchored on trust, data, and personalisation. This positioning stressed “deeper wellness penetration” and targets to generate more than 35% of its sales. “Network expansion, particularly in Indonesia, underpins scale, while SKU rationalisation informed extensive customer surveys improves margins,” says Loh.
The convenience store business, next, is to remain as a core growth engine, with management aiming for margin expansion rather than volume to drive earnings growth. High urban density, store network expansion, and a strategic pivot towards higher-margin ready-to-eat offerings via food bars and refreshed store concepts will be key for this segment. While Hong Kong will remain as this segment’s “earnings anchor”, mainland China will be where “ample” continued expansion to take place, says Loh.
On the other hand, the food segment remains a challenge due to deflationary pressures and tougher e-commerce competition. The company will compete on price, beef up the efficiency of its supply chains, so as to drive sales growth and margins. The company will also remodel some of its stores and shift towards smaller, omni-enabled formats. For example, physical supermarkets will be “engineered” to fulfil multiple customer missions and fulfilment modes simultaneously. “Due to the medium-term nature of these strategies, it would appear that margins and returns can only stabilise and increase over the medium term,” Loh predicts.
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The home furnishings segment, driven by its Ikea franchise, will see some growth but not likely to be “meaningful”. Ikea in Taiwan will be a “relative bright spot” but other markets “continue to swim against the tide of weaker consumer spending.” Drawing reference from how DFI Retail has made a series of divestments in the past couple of years, says that this segment might be sold as well, given that it is the smallest contributor to operating profit, with only an 8% share in 2024.
As such, the analyst is maintaining his “buy” call on DFI Retail with a higher PE-based target price of US$5.30 from US$4.30 previously, given that the analyst has rolled forward his valuation to FY2026.
“In addition, we have raised our target PE multiple to 25.1 times which is in-line with the company’s long-term average PE multiple. Prior to this, we had used a target PE multiple of 22.7 times that was 0.5 standard deviation below its long-term average,” Loh explains.
For now, DFI Retail shares appear to be trading an “inexpensive” multiple of 11% discount to its regional peers compared to its FY2026 earnings, yet, it is able to deliver a slightly higher yield and command the highest ROE. “We note that at 1 sd above its long-term average, our target price for DFI would rise to US$6.74 in 2027,” he says.
