DFI could offer a special dividend after selling Cold Storage, Giant and other units: CGSI

[SINGAPORE] could potentially issue a special dividend following its divestment its Singapore food business to South-east Asian retail conglomerate Macrovalue, said analysts from CGS International on Monday (Mar 24).

The supermarket and retail store operator on Monday announced the sale of the business – which includes a total of 89 Cold Storage and Giant stores and two distribution centres – for a S$125 million initial purchase consideration, subject to adjustments.

“Following its Singapore divestment, we think there is potential for a special dividend of at least US$0.04 per share, based on a 60 per cent payout of the US$94 million proceeds,” said CGS International analysts Meghana Kande and Lim Siew Khee.

This would imply a dividend yield of around 6.6 per cent for FY2025’s forecast, said Kande and Lim.

The announcement of a special dividend would be a key re-rating catalyst, they said. “We reiterate our ‘add’ call on cost efficiencies from its streamlined business portfolio. Our target price stays at US$2.71.”

Noting that DFI has been streamlining its grocery operations with recent exits from Malaysia in March 2023, Indonesia in June 2024, and China in February 2025, the analysts said the divestment which is to be completed in H2 FY2025 could yield cost savings.

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Macrovalue in 2023 also purchased DFI’s Malaysia food business for an undisclosed sum.  

“In our view, DFI could capture around US$230 million of operational cost savings from the Singapore grocery business sale.”

This would lead to an uplift from FY2024’s underlying 3.9 per cent earnings before interest and taxes margin, they said.

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After the transaction, DFI’s fresh food segment will include Wellcome and Market Place brands in Hong Kong, with around 323 stores, San Miu in Macau, with around 22 stores, and Lucky in Cambodia, with around 84 stores.

DFI’s Singapore food business comprises 48 Cold Storage stores – which includes the Cold Storage, CS Fresh, and Jason’s Deli brands – 41 Giant stores and two distribution centres.

Kande and Lim note that DFI will retain its health and beauty and convenience stores in Singapore, comprising the brands Guardian and 7-Eleven.

The company announced plans to sharpen its focus and investments on Guardian and 7-Eleven as these businesses “hold significant potential for growth”. It added that Singapore is a key market in its portfolio.

Kande and Lim noted that the group said it would focus on growing higher margin businesses with a spotlight on Guardian in South-east Asia and 7-Eleven China in its FY2024 earnings results announced earlier in March.

Shares of DFI climbed 6.2 per cent or US$0.14 to an intra-day high of US$2.39 on Monday following the announcement of its divestment, before it ended the day’s session up 4 per cent or US$0.09 at US$2.34.