DBS Group Research has identified DFI Retail Group and Thai Beverage (ThaiBev) as the top stock picks within the Singapore retail sector for positive near-term business outlook with added corporate activity catalysts.
The research house has “buy” calls for both stocks, with a target price of $3.00 for DFI and 77 cents for ThaiBev.
DFI’s grocery segment was under pressure pre-Covid, partially due to the unfavourable market dynamics, coupled with emerging competition from NTUC Finest. With ongoing store network rationalisation, including the closure of Cold Storage locations in suburban areas (with higher HDB concentration) and unprofitable Giant stores, DFI’s Singapore grocery segment is expected to be well positioned to return to profitability.
“As such, we believe there could be upside surprise to our conservative 2% FY2025 operating margin assumption for DFI’s grocery segment (10-year average pre-2017 operating margin is about 4%),” say analysts Andy Sim and Chee Zheng Feng.
“With the recent sale of its Singapore real estate and conclusion of the Yonghui sale in 1Q2025, we believe DFI has ample liquidity for corporate actions that could boost shareholder returns, including >50% higher dividends (>6% yield) and/or a special dividend (with capacity for an additional >5% yield) in FY2025,” add the analysts.
For ThaiBev, improving market conditions and lower interest rates may pave the way for a global brewery partnership and/or a BeerCo IPO.
In a Jan 7 report, DBS points out that there are long-term growth prospects for the premium grocery segment in Singapore amid consumer behaviour shifts towards more at-home meals, after the Covid-19 pandemic.
“According to the recently released Singapore Household Survey, households in private residences have shown higher spend per person, indicating a willingness to spend more on premium groceries and signalling a recovery in the premium grocery market, which benefits DFI,” say Sim and Chee, while noting that the F&B retail space has stagnated post-Covid.
“With ongoing store network rationalisation, including the closure of Cold Storage locations in suburban areas (with higher Housing Development Board flats [HDB] concentration), we believe DFI’s Singapore grocery segment is well positioned for a return to profitability,” they add.
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While there is no rating on the overall sector, DBS has observed three key near-term trends within Asean.
Firstly, due to the negative wealth effect from the property market, DBS economists expect private consumption in China to remain lacklustre in 2025. Companies reliant on Chinese consumers may see soft demand for premium offerings, such as Genting Singapore (GENS)’s VIP gaming services, whereas DFI’s convenience stores could benefit from downtrading.
Secondly, the re-election of Trump is expected to accelerate China +1, boosting foreign investments in Asean economies, particularly Vietnam. Companies with exposure to Vietnam, like ThaiBev and Japfa , could benefit.
Lastly, with sugar, barley corn, and soybean prices continuing to normalise, the analysts expect margin expansion for ThaiBev and Japfa. On the other hand, Delfi may face further margin pressure on record cocoa prices.
As at 3.20pm, shares in DFI are trading at $2.28, while sahes in ThaiBev are trading at 56 cents.
