Brokers’ take: UOBKH upgrades DFI to ‘buy’; raises target on better 2023 outlook
Janice Tan
UOB Kay Hian (UOBKH) has upgraded DFI Retail Group to “buy” from “hold” as it foresees better earnings momentum and a potential margin expansion amid improving market and economic conditions.
Its target price on the stock has been raised to US$3.90 from US$2.96 to reflect a target price-to-earnings (P/E) multiple of 30 times, in line with DFI’s past five-year average.
In a report on Thursday (Feb 9), analyst Adrian Loh said he believes a discount to the mainboard-listed retail company’s P/E is no longer warranted, considering how China’s zero-Covid strategy has been eliminated.
The absence of a Covid-19 spike after the Chinese New Year holidays also led Loh to take a more positive stance on the stock.
With the anticipated normalisation of market and economic conditions, Loh expects DFI to get back on track with its business transformation plan.
The group is also expected to see better earnings momentum as 2023 progresses, said Loh. All of DFI’s business units are projected to show better year-on-year performance, considering how supply chain challenges have eased over the past few months.
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“After three consecutive years of share price underperformance, we believe that DFI may have turned the corner and could outperform in 2023,” Loh added.
Supermarket chain Yonghui and restaurant chain Maxim, which are associates of DFI based in mainland China and Hong Kong, respectively, are also expected to see better sequential performance over the next few months.
The brokerage intends to revise its numbers depending on management’s comments at the group’s FY2022 results briefing on Mar 2.
Although UOBKH’s earnings per share forecasts for DFI in FY2023 and FY2024 remain below that of consensus, it foresees incremental improvements over the next two to three quarters as the group is now expected to reach an “earnings trough”.
Yonghui, which was the main drag on DFI’s financial performance in FY2021, is expected to have a similar effect on FY2022, although Loh said the associate has been “trending more positively of late”.
Shares of DFI closed 3.7 per cent or US$0.12 higher at US$3.34 on Thursday.
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