DBS Group Research analysts have reiterated their “buy” rating for DFI Retail Group D01 with an unchanged target price of US$3.80 ($5.08), considering its “dominant market positions” in North and Southeast Asia.
The analysts’ target price is pegged to -1 standard deviation (s.d.) of the group’s 10-year historical P/E valuation (pre-Covid) of 20.3x on a blended earnings of FY2023 and FY2024.
Within the group are various business segments such as grocery, health and beauty, convenience stores, home furnishings and restaurants. Health & beauty continues to be the group’s key growth driver, note analysts Andy Sim and Chee Zheng Feng.
In their report dated April 24, the analysts conducted a theoretical analysis to identify the intrinsic value of individual business segments within DFI as standalone entities, given the recent “flurry” of companies restructuring and breaking up to create shareholder value.
“Our theoretical analysis and valuation of each respective individual business segment, based on a set of peers, suggests a total sum-of-the-parts (SOTP) value of US$5.5 billion (US$4.10/ share) to US$8.7 billion (US$6.41/share), indicating some 30% to 110% upside to the current share price,” explain the analysts.
Their base case valuations of DFI’s food, health and beauty, home furnishings and the group’s 50% owned restaurant business segments are US$2.1 billion, US$2.2 billion, US$940 million, and US$1.3 billion, respectively.
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Coupled with DFI’s listed equity shareholdings in Yonghui and Robinsons Retail valued at a market price of US$1.2 billion, the DBS base case valuation stands at US$7.0 billion or US$5.16 per share, reflecting around 65% in upside.
They note: “Even our conservative SOTP estimate is 8% above our target price of US$3.80, which is based on our thesis of an earnings inflexion point and post-Covid recovery for DFI in its operations, particularly in North Asia.”
According to the analysts, North Asia’s reopening will be key to driving recovery in the health and beauty, convenience store and restaurant business segments, which were all badly hit by Covid-19 restrictions. For the respective segments, FY2022 operating profits came in at 32%, 62% and 46% of pre-Covid levels.
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“With North Asia reopening, we believe FY2023 will be an inflexion point, with a multi-year recovery in these business segments extending into FY2024 and beyond,” they say.
On the other hand, a lacklustre post-reopening recovery and continued significant losses at Yonghui remains a key risk for DFI.
In their report, the analysts see further re-rating upside for the group with value unlocking initiatives.
As at 2.29pm, shares in DFI were trading 2 US cents or 0.66% up at US$3.06.
