DFI reiterates its FY2026 guidance of underlying profit at US$270 to 300 million supported by 2-3% organic revenue growth. It has reaffirmed its mid-term return on capital employed (ROCE) target of above 15% too. Chee estimates that excluding discontinued operations, underlying profit for FY2025 would be around US$240 million.
Based on his estimates of US$292 million for FY2026, this implies 22% y-o-y growth.
With underlying profit growth of 49% y-o-y in 1QFY2026, DFI is currently tracking ahead of Chee's expectations.
However, Chee flags that the strong growth seen in 1QFY2026 is likely due to lower financing costs after the repayment of US$617 million of debt in Feb 2025, funded by proceeds from the divestment of Yonghui, DFI's then associate supermarket chain in China.
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"As such, earnings growth is likely to moderate in the coming quarters," he warns.
"Nonetheless, we expect the company to continue benefiting from structurally lower finance costs following the sale of its Singapore food business, which should reduce lease liabilities," adds Chee.
The analyst warns that margin pressure in the health & beauty segment, DFI's most profitable division, may be viewed negatively by investors.
Nonetheless, strong performance elsewhere should "more than offset".
Chee further notes that DFI's reiteration of its ROCE target of above 15% underscores its commitment to disciplined capital allocation and avoiding value-destructive acquisitions in pursuit of growth.
Last week, DFI was reportedly in talks to merge its Hong Kong supermarket business with a rival chain operated by CK Hutchison.
According to Chee's calculations in his earlier note on April 17, he figures that there is a significant valuation gap between what CK Hutchison may ask for, and what DFI is willing to pay.
