• Maintain BUY with higher USD2.81 TP from USD2.80, 44% upside and c.6% FY25F yield. DFI Retail Group continues to remain as our recovery play as 1Q24’s interim performance and outlook tracks in line with our expectations. We anticipate continued earnings recovery in FY24F. Dividend yield is decent due to parent company Jardine Matheson Holdings’ (JM SP, NR) practice of uplifting dividends back to the group level. The stock currently trades at an attractive 11x FY25F P/E vs our implied target P/E of 15x.

• 1Q24 within expectations. DFI’s latest interim management statement revealed that 1Q24 continued to track within our expectations. Overall revenue grew 2% YoY while underlying profit grew more than 60% YoY on the back of better profitability. The food retail division’s SSSG declined on weaker consumption and saw margin improvement on cost control. The convenience division’s SSSG increased in Macau, South China, and Singapore while margins more than doubled due to better sales mix. The health and beauty division’s SSSG grew in Malaysia and Indonesia, and on tourism recovery in North Asia. Margins improved on cost control and better gross margins. The home furnishing division saw lower underlying profit – affected by weak sentiment in Indonesia and Hong Kong outlets. Among key associates, Maxim’s had flat profit growth, while Yonghui and Robinson’s Retail’s profits grew.

• Estimates unchanged. There is no change to our estimates as we see 1Q24 tracking within our forecast. Management guidance for FY24F’s underlying profit attributable to shareholders remains between USD180m and USD220m. Although growth in 2H24 is expected to normalise given higher base in 2H23, we see continued earnings recovery in FY24F and beyond, led by improving profitability of key segments, including the food retail division.

• Slightly higher TP due to Yonghui’s better share price. Even though our estimates remain unchanged, our TP based on sum of parts is adjusted higher mainly due to Yonghui’s share price. Since our last update on 12 Mar 2024, Yonghui’s share price has increased from CNY2.57 to CNY2.63, representing an increase of 2%. This has positively impacted our sum of parts valuation in the value of Yonghui – in which DFI has a 19.9% stake. While the overall core business and value of stakes in other companies ie Robinson’s Retail and Maxim’s remain largely unchanged, the recent increase in Yonghui’s share price has resulted in a slightly higher overall TP for DFI.

• Downside risks to our recommendation include a slower-than-expected recovery in consumer spending and higher-than-expected costs, which should ultimately lead to lower margins and earnings. As DFI’s ESG score is below the country median of 3.1, we apply a 2% ESG discount to its intrinsic value to derive our TP.

Source: RHB Research - 7 Jun 2024