UOB Kay Hian Private Limited
Date of Report: 4 June 2025

DFI Retail Group: Divestment Drives Growth and Margins – A Comprehensive 2025 Outlook for Investors

Overview: Strategic Transformation in Focus

DFI Retail Group Holdings (DFI SP), a leading operator and manager of retail stores across 12+ markets, is making bold moves to reshape its business for higher returns. The group spans four divisions: food, health & beauty, home furnishings, and restaurants (associate level). With a market cap of US\$3.59 billion and a recent share price of US\$2.65, DFI is sharpening its focus on its core, high-margin operations after a series of significant divestments.

Key Report Highlights

• BROKER: UOB Kay Hian Private Limited
• BUY rating maintained; target price raised to US\$3.50 (upside of +32%)
• 2025 profit growth guidance: 14–34% year-on-year
• Net debt eliminated, positioning the company for growth and potential dividend upside

DFI’s Exit from Robinsons Retail: A Strategic Pivot

DFI has divested its 22.2% minority stake in Robinsons Retail Holdings (RRH), Philippines, selling it back to the company for Php50/share (US\$280 million in total). The sale price represents a premium over RRH’s recent trading average (Php38.78 over three months and Php39.09 over 12 months), indicating a favorable exit. However, DFI’s average acquisition cost was Php94/share, resulting in a large discount to its entry price. Despite this, the transaction could yield a minor gain as RRH was held at a fair value of US\$196 million at end-2024, though this may be offset by foreign exchange losses due to peso depreciation.

Rationale Behind the Divestment

• DFI is moving away from portfolio investor status, focusing instead on operating businesses where it can control outcomes and returns.
• The sale aligns with DFI’s strategy to back high-return on capital employed (ROCE) businesses and avoid minority positions that leave shareholder returns dependent on third-party management.
• Divestment proceeds are earmarked for growth and strengthening of higher-margin subsidiaries.

2025 Growth Outlook: Guidance and Segment Focus

DFI forecasts 2% revenue growth for 2025, with underlying profit projected between US\$230 million and US\$270 million—a 14% to 34% year-on-year increase. The company’s 2025 strategy is centered on expanding its Health & Beauty (H&B) and convenience store segments, both of which generate superior operating profit margins. The product mix is being optimized for further margin enhancement.

Comprehensive Financial Summary

Comparable M&A Activity: Lessons from Asia

Other major retailers have also executed minority stake sales, often at significant discounts:

• Alibaba sold its 73.7% stake in Sun Art Retail Group to DCP Capital at a 56% discount compared to its 2020 acquisition price.
• Walmart divested its US\$3.74 billion stake in JD.com.
• KKR and Walmart sold their stakes in Japan’s Seiyu supermarket chain for US\$2.5 billion.

These moves highlight a regional trend of strategic exits from non-controlling positions.

Utilization of Sale Proceeds and Dividend Prospects

In the 12 months to end-2024, DFI reduced its net debt by 25% to US\$468 million (net debt/equity: 0.79x). The completion of the Yonghui sale at end-February 2025 has turned DFI into a net cash company. With further proceeds of S\$125 million expected in 2H25, DFI aims to further reduce debt and potentially raise dividends. For 2025, the estimated dividend per share (DPS) is US\$0.103, a 3.9% yield based on the latest share price (payout ratio: 60%).

Earnings Revision and Risks

• No changes to earnings estimates have been made.
• Key risks: Rising food costs and inflation could impact consumer spending, with trends such as cross-border shopping (e.g., Johor Bahru or Shenzhen) posing challenges.
• Technological innovation and new business models from competitors may erode DFI’s market share.

Valuation and Peer Comparison

DFI’s target price is set at US\$3.50, based on a PE multiple of 20.3x (1SD below the 10-year average, excluding COVID-19 years). The 2025F PE of 14.3x is a 27% discount to regional peers, with a higher prospective yield (3.9% vs. 2.8% peer average).

DFI’s Evolving Geographic Focus

Following the sale of its Singapore food business in 1Q25 and the recent exit from the Philippines, DFI’s revenues and profits will increasingly come from its North Asia segments. The company’s capital is being redirected toward health & beauty and convenience store businesses, both of which deliver higher operating profit margins and improved capital efficiency.

Key Catalysts for Share Price Upside

• Continued momentum in the convenience segment, especially through higher-margin ready-to-eat offerings
• Accretive acquisitions that enhance ROCE
• Monetization of the DFIQ media platform and data from the yuu platform
• Further divestment of non-core or under-scaled businesses

Segment Profitability Trends

DFI’s segment operating profit share and margin trends highlight its strategic thrust:

• Convenience and health & beauty are increasing as a share of operating profit, with food and IKEA segments also contributing solidly.
• Operating profit margins are highest in health & beauty and convenience stores, supporting management’s focus on these divisions.

Detailed Profit & Loss, Balance Sheet, and Cash Flow Projections

Conclusion: DFI Retail Group Poised for Value Creation

DFI’s strategic focus on high-ROCE segments, optimization of its business mix, and firm financial footing after recent divestitures position it as a compelling investment opportunity. With an attractive valuation, robust dividend prospects, and clear catalysts for further upside, DFI Retail Group is firmly on the radar for investors seeking growth and stability in the Asian consumer sector.