DFI Retail, part of the Hong Kong-based conglomerate Jardine Matheson, is selling Cold Storage and Giant chain of supermarkets to Malaysia's Macrovalue for $125 million.
Yeo notes that these supermarkets face challenges ranging from stiffer competition, rising costs, and inflation.
"We believe competitive challenges from the higher-end grocery retail segment include downtrading by consumers and keen competition from mass market players, NTUC Fairprice and Sheng Siong," says Yeo, who has a "buy" call and $1.98 target price on the latter.
With the sale, DFI can now focus on driving growth from its more profitable 7-Eleven convenience stores and its Guardian brand and alleviate the longer-term drag on its earnings.
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Yeo has cut his revenue forecasts to take into account the divestment. However, as the business being sold is "largely in a breakeven position" there will be scant impact on DFI's overall earnings.
Yeo's higher target price of UIS$3.03 includes both longer-term growth and accounting for incoming sale proceeds.
DFI now trades at an "attractive" 13x earnings and an estimated FY2025 yield of 5%.
DFI Retail Group shares, as at 10.07 am, was up 1.72% to US$2.37.
