Broker: CGS International
Date of Report: July 23, 2025

DFI Retail Group Delivers Strong Earnings, Announces Generous Special Dividend: In-Depth Analysis and Peer Comparison

Overview: DFI Retail Group’s 1H25 Performance Shines With Special Dividend Boost

DFI Retail Group has reported robust first-half 2025 results, driven by significant growth in its Health & Beauty (H&B) segment and improved associate contributions. The company’s surprise announcement of a substantial special dividend has positioned its FY25F dividend yield at an eye-catching 16%. While challenges remain in food and convenience segments, the group’s disciplined capital management and strategic pivots signal a period of transformation and opportunity for investors.

Key Highlights

• 1H25 underlying PATMI: US\$105m, up 39% year-on-year, in line with expectations
• Special dividend: 44.3 US cents per share, bringing FY25F DPS to 54.8 US cents (16% yield, one-off)
• Target price raised: to US\$3.86 (from US\$3.00), based on higher 17x 2026F P/E and inclusion of special dividend
• Upcoming catalyst: Expected Investor Day in 4Q25F for strategic updates

Financial Summary: DFI Retail Group

Strong H&B and Associate Contributions Offset Food and Convenience Weakness

DFI’s underlying profit after tax and minority interests (PATMI) for 1H25 reached US\$105m, forming 40–42% of full-year estimates. Associates’ contribution surged from US\$3m in 1H24 to US\$30.5m in 1H25, aided by gains from Maxim’s and Robinsons Retail and the absence of prior losses from Yonghui after its divestment. Despite flat revenues at US\$4.4bn, the group achieved an improved 4.0% operating margin, up 20bps year-on-year, driven by a better sales mix and cost optimization.

While H&B posted robust growth from larger basket sizes, food and convenience revenues were soft due to base effects from last year and regulatory changes such as higher cigarette taxes in Hong Kong. The group’s strategic divestments, including its Singapore grocery business, have improved overall profitability even as organic revenue growth guidance for FY25F was trimmed to 0.5–1% from 2%.

Special Dividend Signals Limited Reinvestment, Strong Focus on Shareholder Returns

Following monetization of US\$900m in portfolio assets during 1H25, DFI declared a special dividend of 44.3 US cents per share, raising the total FY25F dividend yield to an attractive 16%. This is a one-off payout, with capex guidance maintained at US\$200–220m for FY25F, earmarked for cost optimization, store revamps, and network expansion. The combined interim and special dividend payout of US\$647m, due in October 2025, exceeds the current cash balance, but management is confident in ending the year net cash positive through working capital improvements.

Segmental Analysis: Performance and Strategic Initiatives

Food (Grocery Retail)

• 1H25 revenue: US\$1.5bn (flat hoh, -2% yoy)
• EBIT: US\$24m (-24% hoh, -5% yoy); EBIT margin stable at 1.6%
• Hong Kong supermarkets facing customer downtrading and spending shifts to neighboring cities
• DFI is partnering with DingDong to offer 150 fresh SKUs at competitive prices to win back traffic from wet markets

Convenience Stores

• 1H25 revenue: US\$1.1bn (-7% hoh, -3% yoy), impacted by lower cigarette sales in Hong Kong
• EBIT: US\$38m (-32% hoh, -19% yoy); EBIT margin at 3.4% (-0.6% pts yoy)
• Hong Kong sales improved in 2Q25 as cigarette tax effects annualized and ready-to-eat (RTE) product share rose to 24%
• Singapore saw lower LFL sales due to subdued tourism; South China expanded store count but faced online competition

Health & Beauty (H&B)

• 1H25 revenue: US\$1.3bn (+4% hoh, +7% yoy)
• EBIT: US\$109m (+1% hoh, +6% yoy); EBIT margin 8.4%
• Strong 6% LFL growth for Mannings in Hong Kong, led by wellness categories
• 24 new Guardian stores opened in SEA; asset-light franchisee model piloted in Indonesia

Home Furnishings

• 1H25 revenue: US\$328m (-7% hoh, -6% yoy)
• EBIT: US\$9m (2H24: US\$13m, 1H24: US\$3m); EBIT margin up to 2.6% due to cost optimization
• Taiwan segment remained resilient despite regional pressures

Associates

• Underlying profit from associates: US\$31m (1H24: US\$3m)
• Maxim’s profit share up 75% yoy to US\$14m
• Robinsons Retail profit share more than doubled to US\$18m prior to its divestment in May 2025
• Yonghui stake fully divested in February 2025, removing loss drag

Guidance, Outlook, and Valuation

• FY25F profit guidance: US\$250–270m, in line with estimates
• Organic revenue growth guidance revised down to 0.5–1%
• Capex and dividend payout guidance unchanged at US\$200–220m and 60%, respectively
• Target price raised to US\$3.86, now based on 17x 2026F P/E and inclusion of the special dividend
• Key catalysts: Investor Day for strategic updates; risk factors include slow Hong Kong recovery and cost pressures

Peer Comparison: How DFI Stacks Up

DFI’s valuation is competitive among Singapore grocery peers but trades at a premium to many regional retailers. Its 17.3% two-year EPS CAGR, high ROE, and strong dividend yield stand out. However, DFI’s P/BV is higher than most, reflecting both its recent asset-light shift and its special dividend event.

ESG Transformation: Ambitious Sustainability Commitments

• DFI targets halving carbon emissions by 2030 and achieving net zero (Scopes 1 & 2) by 2050
• Annual investment of US\$15–20m planned for emission reduction through 2027
• Scope 1 & 2 emissions fell 2% yoy in 2024; energy use down 3% yoy
• Enhanced ESG disclosure since 2022, with ongoing focus on transparency

The group’s five-year sustainability plan is gaining traction, with ongoing improvements in environmental performance and stakeholder engagement.

Conclusion: DFI Retail Group Poised for Strategic Transformation

DFI Retail Group’s 1H25 results underscore its ability to drive profit growth through strategic asset monetization, cost optimization, and a focus on high-margin segments such as Health & Beauty. The generous special dividend highlights management’s commitment to shareholder returns, even as reinvestment is temporarily curtailed. Looking forward, clarity from the upcoming Investor Day, continued recovery in Hong Kong, and successful execution of transformation initiatives will be key to sustaining momentum and restoring investor confidence.

Appendix: Key Operating Metrics and Ratios

DFI Retail Group remains a leading force in Asian retail, balancing transformation with immediate shareholder rewards. Investors should closely monitor execution on strategic pivots, Hong Kong recovery trends, and ongoing ESG progress as the group navigates its next chapter.