DFI Retail Group Holdings Ltd. (DFI SP) operates in over 12 markets, focusing on four divisions: food, health & beauty, home furnishings, and restaurants.

• Stock Data:
  • Share price: US$2.03
  • Target price: US$2.57 (indicating a 26.6% upside).
  • Market Cap: US$2.74 billion.
  • Bloomberg ticker: DFI SP.
  • Major shareholder: Jardine Matheson (77.5%).

2. Recent Developments

• Divestment of Yonghui Superstores:
  • DFI has sold its 21.1% stake in Yonghui Superstores to Miniso Group for RMB 4.5 billion (US$637 million).
  • This sale will result in a US$128 million write-down for the current fiscal year, which the company views as positive due to Yonghui’s prior losses.
  • Expected positive outcomes include focusing on higher returns and the possibility of a special dividend.

3. Financials and Performance

• Earnings Performance:
  • 2024 Financial Forecasts:
    • Net Turnover: US$9.2 billion.
    • EBITDA: US$1.1 billion.
    • Net Profit: US$186 million, with a 2% net margin.
  • 2025 Projections:
    • EBITDA is expected to grow to US$1.29 billion.
    • Operating profit will rise to US$363 million.
  • Profit Margins:
    • EBITDA margin for 2024 is 10.4%, with projections showing growth to 12% by 2025.
• Leverage:
  • DFI has reduced net debt by 38%, resulting in a net debt/equity ratio of 0.58x as of 1H 2024.
  • Debt reduction remains a priority following the sale of Yonghui.

4. Key Strategic Moves

• Focus on High-Growth Markets:
  • DFI is shifting away from low-margin markets like China, Malaysia, and Indonesia, prioritizing markets like Hong Kong and Singapore.
  • Expansion in convenience stores and investment in ready-to-eat (RTE) meals in South China is proving successful, contributing 40% to sales, with plans to expand further.
  • Collaboration with 7-Eleven Japan to introduce new products into its Asian businesses, including QSR (Quick-Service Restaurant) opportunities.

5. Valuation and Recommendation

• DFI maintains a Buy rating with a target price of US$2.57.
• This is based on a 16.7x price-earnings ratio, which is 1 standard deviation below its average PE over recent years.

6. Key Financial Ratios

• Debt Metrics:
  • Debt to equity is projected to drop from 36.5% in 2024 to 30.6% in 2025.
  • Interest cover ratio is strong at 18.2x for 2024.
• Profitability:
  • Return on Equity (ROE) is expected to increase from 11.6% in 2024 to 12.9% by 2026.

This report offers a comprehensive analysis of DFI’s strategic movements, financial forecasts, and market outlook, with strong emphasis on its exit from challenging markets and the expansion into higher-margin segments.

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