While Loh estimates that the selling price is lower than DFI's entry cost, this move signals the company's more definite focus on operations that can generate better return on capital employed.
"With 2025 profit growth guided at 14 - 34% y-o-y and net debt now eliminated, DFI is well-positioned for growth, improved margins and dividend upside," says Loh, who has raised his target price for this counter from US$2.80 to US$3.50.
According to Loh, DFI is selling the stake at 50 pesos per share, which is a premium over RRH's average trading price of around 39 pesos per share over the past 12 months.
However, he points out that DFI's acquisition cost, via a series of transactions, was 94 pesos.
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Still, he estimates that DFI could enjoy a minor gain on this transaction given that RRH was held at a fair value of US$196 million at the end of FY2024.
This sale is in line with DFI's previously stated strategic pivot from a portfolio investor to a more focused operating company.
"The divestment of this minority position and utilisation of sale proceeds to support the growth and higher returns of subsidiary businesses is not a surprise," says Loh, referring to how DFI had indicated it plans to stay away from minority positions.
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"I don’t see minority shareholding as an important part of our proposition moving forward. In general, you don’t put your TSR (total shareholder returns) in someone else’s hands,” said DFI CEO Scott Price at the FY2025 results briefing, without making direct reference to Yonghui, a China-based supermarket chain which DFI divested. Since then, DFI would go on to also divest its Cold Storage and Giant supermarket chains in Singapore.
The company has guided for revenue growth of 2% this current FY2025, and also underlying profit growth of between 14 to 34% y-o-y.
Loh expects DFI to continue to pare down debt and potentially deliver higher dividends, estimated at 10.3 US cents per share, assuming a payout ratio of 60%, implying a yield of 3.9%.
By applying a 20.3x earnings multiple, Loh has derived a revised target price of US$3.50, up from US$2.80.
At FY2025 PE of 14.3x, DFI's valuation multiple has narrowed versus its regional peers but is still at a discount of 27%, yet, it delivers a higher prospective yield of 3.9% vs its peers’ average yield of 2.8%.
DFI Retail Group shares changed hands at $2.66 as at 3.21 pm, up 0.38%.
