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Yonghui divestment may see one-off loss of around US$130 mil but move will benefit DFI in the longer term: analysts

Felicia Tan
Felicia Tan • 3 min read
Yonghui divestment may see one-off loss of around US$130 mil but move will benefit DFI in the longer term: analysts
The divestment is expected to be completed within six months, by March 23, 2025, after the required regulatory conditions are satisfied. Photo: Bloomberg
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DFI Retail Group may have to account for a one-off loss of around US$130 million ($166.9 million) after its divestment of shares in Yonghui is completed, says the DBS Group Research team. This is based on the carrying value of US$765 million as of the end of June. The Citi Research team pegs the one-time loss at US$127 million.

On Sept 23, DFI announced that it will be divesting its entire 21.1% stake in Yonghui to Miniso for RMB4.5 billion ($823.3 million). The price works up to about RMB2.35 per share over DFI’s 1.91 billion shares, or 4% higher than the RMB2.25 as at the close of Sept 23.

DFI’s shares are indirectly held through its subsidiary in Yonghui Superstores. Shares in the latter are listed on the Shanghai Stock Exchange while shares in Miniso are listed on the Hong Kong Stock Exchange (HKEX) and New York Stock Exchange (NYSE).

In their respective reports, both DBS and Citi recognise that the transaction was in line with DFI’s management’s ongoing strategy of divesting its unprofitable businesses such as Giant Malaysia and Hero supermarkets among others.

“Yonghui has been a drag to earnings for the last few years and a return to profitability has been challenging,” says the DBS team.

Despite the “substantial one-off loss” from the sale, the team sees that the move will benefit DFI in the longer term with annualised earnings uplift of some US$30 million without including Yonghui’s losses in future.

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Citi Research analysts Brian Cho, Wei Xiaopo and Tiffany Feng see that the divestment will have a limited impact on DFI’s share loss of associate as well.

In 1HFY2024 ended June, DFI’s share of Yonghui’s underlying loss was US$8 million, an improvement from the US$17 million loss in 1HFY2023. The better results were due to the ongoing optimisation efforts in relation to costs and store footprints, says DFI in its Aug 1 results announcement.

Once it receives the proceeds, which is likely to be in 1QFY2025, DFI is likely to use them to invest in its subsidiaries across its markets, repay debt, grow dividends and conduct other corporate actions in that order.

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“Given the size of the proceeds, we believe a substantial amount would go towards paring down of its US$860 million debt position as of end June, which could provide a considerable interest savings boost,” says DBS.

“Post-transaction, we believe the company should be net cash, as such we do not rule out the possibility of a special dividend,” it adds.

The Citi team agrees, noting that the proceeds can enhance DFI’s overall operational efficiency and position the group for sustainable growth, thereby leading to improved earnings in the mid-term.

DBS has kept its “buy” call on DFI with an unchanged target price of US$2.30. Citi has also kept its “buy” call with an unchanged target price of US$2.67.

The divestment is expected to be completed within six months, by March 23, 2025, after the required regulatory conditions are satisfied.

As at 2.33pm, shares in DFI are trading 6 US cents lower or 2.96% down at US$1.97.

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