Analysts remain upbeat on DFI Retail Group , even as the company reported a loss of US$244.5 million ($325.6 million) for FY2024 ended Dec 31, 2024.
This is a reversal from the US$32.2 million in earnings reported in the same period a year ago. In addition, revenue was down 6% y-o-y to US$24.9 billion.
With expectations of continued recovery, the company’s share price surged more than 8% after the results were out to close at US$2.28 on March 12. If analysts are correct, the stock still has room to grow, though their target of around US$3 remains a long way from DFI’s all-time high of over US$13 in 2013, during the peak of the China-Hong Kong boom.
Part of Hong Kong-based Jardine Matheson Holdings , DFI, operates a diverse retail network, including supermarkets Giant and Cold Storage, convenience stores 7-Eleven, restaurants, cafes and health and beauty stores.
DFI’s reported results were impacted by non-trading losses attributable to shareholders of US$445 million. This was due to a loss of US$114 million, which is associated with the divestment of Chinese supermarket chain Yonghui, a US$231 million impairment of interest in Robinsons Retail and a US$133 million goodwill impairment of Macau and Cambodia Food businesses.
See also: UOBKH lowers TP for Delfi by 3% to 82 cents after earnings missed expectations
Its underlying profit attributable to shareholders for FY2024 stood at US$200.6 million, up from US$155 million reported in FY2023. Despite the large non-trading losses reported, DFI says it is now in a net cash position following the completion of the Yonghui transaction in February.
DBS Group Research analysts Chee Zeng Feng and Andy Sim have maintained their bullish “buy” call and US$3 on this counter. They note that DFI is actively sharpening its retail strategy to focus on value, aligning with cost-conscious consumers.
In its food, health and beauty segments, the company revamped its brand strategy, pricing each SKU 10% lower than national brands while maintaining higher margins. In home furnishings, it emphasises Ikea’s quality and ensures the all-in cost, including delivery, stays competitive with rivals. DFI operates Ikea in Hong Kong, Taiwan and Indonesia.
Given the macroeconomic softness in North Asia, Chee and Sim are adopting a cautious outlook on revenue growth, expecting it to remain flat rather than meet the company’s 2% growth projection.
Below the topline, DBS analysts have adjusted their earnings mix forecasts. They have lowered associates’ income due to ongoing weakness in the restaurant chain Maxim’s business and increased interest expenses due to slower-than-expected debt repayment. However, they anticipate that DFI will report higher ebit, with stronger-than-expected FY2024 margins expected to carry through into FY2025.
With the sale of Yonghui, the company is now in a net cash position. DFI is considering M&A opportunities in existing formats and geographies, focusing on earnings-accretive, controlling stakes.
“Our dividend assumption is adjusted to reflect a 60% payout ratio, allowing the company to retain capital for potential M&A. Despite this, its valuation remains undemanding at 11 times forward PE and a 5.4% yield (based on US$2.11 share price),” say analysts Chee Zeng Feng and Andy Sim. They expect a possible special dividend in the event the group does not manage to find any attractive M&A targets.
On the other hand, Adrian Loh of UOB Kay Hian is maintaining his “buy” call but with a higher target price of US$2.80 from US$2.57 previously. He observes that DFI’s underlying net profit was higher than expected, driven by the convenience, health and beauty and food divisions and a reduction in losses from Yonghui. The final dividend of 7 US cents was also a positive surprise.
Loh is confident that DFI will deliver a stronger FY2025. The company plans to grow revenue, potentially monetise its consumer loyalty platform and better exploit advertising opportunities within its supermarkets.
“We have upgraded our FY2025-FY2026 net profit estimates by 2% to 6% to take into account the company’s better earnings visibility and momentum in its health and beauty and convenience segments. We note that our FY2025 profit estimate of US$233 million is at the bottom end of the company’s net profit guidance of US$230 million to US$270 million and would hope to upgrade numbers as the year progresses,” says Loh.
He adds: “With Yonghui’s losses removed and the apparent stabilisation of consumer behaviour in its food divisions in Hong Kong and Singapore, we look forward to witnessing DFI delivering on its earnings growth in FY2025.”
