Chee notes that ParknShop was last up for sale in 2013, with bids ranging from US$3 billion to US$4 billion ($3.01 billion to $5.08 billion) and has remained unsold since.
Citing estimates from Euromonitor, the analyst notes that the two now hold a combined 92% market share in Hong Kong’s supermarket industry. However, according to checks by Chee, Hong Kong’s merger regime applies only to the telco industry.
“In addition, greater accessibility to the Greater Bay Area from Hong Kong has likely expanded the competitive landscape, including cross-border players, which could lead authorities to take a broader view and deem the merger less anti-competitive,” says Chee in his April 17 note.
If the two entities were to combine, significant economies of scale could be achieved in this structurally low-margin business. DFI Retail will also have a much bigger platform to expand its digital media business, selling advertising space to brands across screens at physical retail points.
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DFI Retail, under previous management, gained a reputation for overpaying in its bid to expand. It had decisively divested some of these acquisitions in China, Singapore, Malaysia and the Philippines over the last couple of years.
With proceeds from these divestments, DFI Retail managed to turn its balance sheet “cash neutral”, sparking a two-thirds gain in its share price over the past year.
Chee, noting that DFI Retail has laid down a clear return on capital employed target of 15%, expects the company “to remain disciplined” in its M&A.
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Chee estimates that Wellcome will generate net operating after-tax income of US$33 million to US$42 million for FY2026. Given a comparable market share, he assumes ParknShop’s earnings are in the same range.
After applying a 16.5% corporate tax rate, DFI Retail’s implied valuation range to deliver 10% to 15% Return on Capital Employed (ROCE) is expected to be from US$220 million to US$420 million, far short of the US$3 billion to US$4 billion valuation touted more than a decade ago, and thus “the key obstacle” to any deal.
“Overall, while a merger could be value-accretive at the right price, the substantial valuation gap suggests that a transaction is unlikely to materialise,” says Chee, who is keeping his “buy” call and US$5 target price on DFI Retail.
Reports of this potential merger aside, DFI Retail, on its own, has gone ahead and chalked up what Chee calls a “strong start” for the year. In its 1QFY2026 ended March, DFI Retail reported that underlying profit from continuing business grew by 49% y-o-y, ahead of estimates of 22% y-o-y growth expected for the whole of FY2026.
The retailer, which sells under brands such as 7-Eleven, Guardian, and Ikea, saw strong performance across its convenience, food, and home furnishings segments and benefited from lower financing costs.
DFI Retail reiterates its FY2026 guidance for underlying profit of US$270 million to US$300 million, supported by 2%–3% organic revenue growth. It has also reaffirmed its mid-term ROCE target of over 15%. Chee estimates that, excluding discontinued operations, the underlying profit for FY2025 would be around US$240 million.
Based on Chee’s estimates of US$292 million for FY2026, this implies 22% y-o-y growth.
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With underlying profit growth of 49% y-o-y in 1QFY2026, DFI Retail is currently tracking ahead of his expectations.
However, Chee flags that the strong growth seen in 1QFY2026 is likely due to lower financing costs following 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. “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 Retail’s most profitable division, may be viewed negatively by investors. Having said so, strong performance elsewhere should “more than offset”.
Chee further notes that DFI Retail’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.
Meghana Kande and Lim Siew Khee of CGS International are even more bullish than Chee, as they maintained their higher target price of US$5.50 for this counter, based on 22.5 times FY2027 earnings. “We like DFI Retail’s strong execution and earnings growth visibility,” state the analysts in their April 22 note.
“Any potential acquisition of ParknShop would need to come at a steep discount given its operating losses and recent ebitda recovery. With a healthy net cash position of US$56 million as of March 2026, following DFI Retail’s portfolio optimisation since 2024, we expect DFI Retail to be disciplined in balancing valuation and leverage for M&A,” they add.
