For many consumers in Asia, it is difficult to avoid spending with DFI Retail Group Holdings as they go about eating or shopping, be it getting a latte from Starbucks, a sofa set from Ikea or groceries from the Giant supermarket.
Hong Kong and Guangzhou residents would have eaten often at an F&B outlet under Maxim’s group, which is 50% held by DFI. The brands range from the upmarket Maxim’s Palace chain of Cantonese restaurants to steakhouse Lawry’s The Prime Ribs and from Genki Sushi to Ippudo Ramen.
As at Dec 31, 2021, DFI and its associates and joint ventures operate a total of 10,286 stores across 12 markets ranging from China to Vietnam to Singapore, up from 9,997 stores at the end of FY2020. They range from supermarkets, hypermarkets, health and beauty (H&B) stores, convenience stores, home furnishing stores, and restaurants.
Despite this extensive portfolio spanning multiple price points and product segments and ranging from consumer staples to highmargin consumption goods, DFI’s earnings have suffered over the past few years.
For the most recent full year, FY2021 ended Dec 31, 2021, DFI reported earnings of US$102.9 million ($136 million), a significant 62% y-o-y drop, forcing it to cut its dividend from 9.5 US cents to 6.5 US cents. In 1HFY2022, it reported a loss of US$58 million, versus earnings of US$17 million a year ago, as the combination of pandemic restrictions, supply chain pressures, and inflationary woes weighed on the bottom line.
Over the past year, because of China’s zeroCovid policy, DFI was sold down together with other stocks with a significant North Asian exposure. “We believe the selloff is overdone and valuation is at an attractive level currently, as we project earnings to rebound strongly in the current FY2023 and coming FY2024, after an expected low point in FY2022,” says DBS Group Research, which has reiterated its “buy” call, along with a street-topping target price of US$3.90, which is pegged to a 17.4x P/E ratio.
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With a target price of US$3.70, HSBC Global Research is the next loudest cheerleader. The most bearish is Citi Research, calling US$2.36, and the rest ranging up to US$2.96 in the case of UOB Kay Hian.
Other analysts might become similarly optimistic soon. DBS says with China’s significant move to open up its economy and allow travel since January, DFI is set to win back one of its more lucrative businesses: Its market-leading chain of health and beauty retail stores that mainland tourists like to flock to before the pandemic.
By doing so, they helped to create a US$5 billion market before the pandemic, but next to nothing now. DFI, according to DBS, commands via its Mannings chain of health and beauty retail stores a 26% value of this market — 8% more than its closest competitor. “We expect Chinese tourist influx to rebound sharply in 2H2023, which should materially improve H&B earnings,” says DBS.
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Meanwhile, DBS notes that while locals may have shifted their preference to shop online for their beauty products, tourists will help boost sales in the physical stores. “With an extensive physical store footprint, double its nearest competitor, it has a competitive edge in securing the tourist dollar,” says DBS.
On the whole, DBS likes mass grocery retailers (MGRs) which includes DFI, as it sees it as an attractive recession hedge amid the possibility of a recession this year. In the case of such an event, MGRs will provide safety for investors to weather the storm, as customers shift their preference to in-house consumption.
Photo: Bloomberg
