Brokers’ take: DBS expects DFI earnings to bounce back in FY2023; upgrades to ‘buy’

DBS Group Research has upgraded DFI Retail Group : D01 0% to an early, non-consensus “buy” from “hold” as it expects associate performance to bounce back next year.

It also raised its target price to US$3.07 from US$2.67. This represents a potential upside of 21.3 per cent from the counter’s last trading price of US$2.53 as at 11.47 am on Thursday (Nov 10). The company’s shares were up 4.6 per cent or US$0.11 at the time.

The research team believed the market is “overly pessimistic” on DFI’s North Asia business and said current valuations are mispricing the group’s strong FY2023 earnings recovery.

The Hong Kong market, where key revenue contributor Maxim’s Group resides, is expected to see some recovery amid relaxing Covid-19 restrictions, which should spur dining-out spending, DBS said in a report on Wednesday.

Furthermore, higher elderly vaccination rates and an increased count of Covid-19-dedicated hospital beds will likely lower the possibility of Covid-19 restrictions being reinstated. However, they cannot be completely ruled out given China’s current zero-Covid policy stance and influence on Hong Kong policies, DBS noted.

Yonghui Superstores, another associate, is also projected to return to profitability. It stands to benefit from easing competition from community group buying platforms in China, which compressed supermarket margins in recent years after exploding in popularity during lockdowns.

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DBS pegged DFI’s price to be 17.5 times its estimated FY2023 earnings, which is 1.5 standard deviations below its 10-year mean. The research team also projected a yield of 4.3 per cent in FY2023.

DFI Retail Group, previously known as Dairy Farm International, operates supermarket brands Cold Storage and Giant in Singapore. A member of the Jardine Matheson Group, DFI has a primary listing on the London Stock Exchange and secondary listings in Bermuda and Singapore.