Brokers’ take: Analysts cut DFI Retail Group target on lower earnings forecast

ANALYSTS have shaved their price targets for DFI Retail Group upon trimming their earnings estimates.

This came after the group’s core underlying earnings of US$155 million reported last Thursday (Mar 7) missed street expectations.

However, both DBS Group Research and RHB maintained their “buy” calls for the group, as they stay positive on the pan-Asian retailer’s recovery momentum, .

DBS analysts Chee Zheng Feng and Andy Sim revised their target down to US$2.70 from US$3.80, after lowering FY2024 earnings estimate by 36 per cent. This was to factor in continued weakness of Chinese supermarket chain Yonghui, on top of greater macroeconomic headwinds.

Chee and Sim noted that while evolving consumer behaviours post-Covid remain a challenge for the group, they see the retailer adapting well to the changes with a strong recovery momentum in 2024.

“We expect to see continued strong earnings growth driven by improved sales mix,” said the DBS analysts, noting that DFI has been strengthening its higher margin ready-to-eat offerings in the convenience stores segment, as well as the health category to suit changing customer needs in health and beauty segment.

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They also expect the return of Chinese tourists to drive earnings growth despite changing consumption patterns.

“Though consumption patterns of Chinese tourists have shifted away from shopping, they remain keen to purchase health products in Hong Kong, which has a wider range of offerings compared to mainland China,” said the analysts.

Similarly, RHB analyst Alfie Yeo lowered his target to US$2.80 from US$2.92 upon cutting earnings estimates for FY2024 and FY2025 by 9 per cent each. This came after the weak performances of DFI’s joint ventures and associates, such as Yonghui, dragged down its US$155 million earnings to lower than estimates.

Yeo noted that he imputed a slower revenue growth rate given a flat FY2023 revenue, but expects better earnings before interest and taxes margins as DFI’s core segments continue to recover.

The group’s total revenue for the year remained at US$9.2 billion, buoyed by a strong recovery in the health, beauty and convenience divisions but offset by lower sales within its food and home furnishings divisions.

“DFI Retail Group remains our recovery play as FY2023 earnings continue to show core profit and margin improvement, with key operations beating our operating profit forecast,” said Yeo, adding that the new chief executive Scott Price’s restrategisation would project DFI for further growth, amid an improving consumer demand.

Shares of DFI Retail Group : D01 0% were trading up 0.5 per cent, or US$0.01, to US$2.18 as at 11.14 am on Wednesday.