Farewell RRHI, hello to ROCE and TSR

• RRHI announced the acquisition of DFI&rsquo s entire 22.2% stake as part of its share repurchase programme at PHP50 per share, a 36% premium to the last closing price and 14% above DFI&rsquo s carrying value
• While the divestment was largely anticipated, the valuation premium surprised and reflects strong negotiation and execution by management
• Core earnings impact expected to be minimal, RRHI&rsquo s contribution will largely be similar to FY24, with potential upside from interest income
• Transaction enhances management&rsquo s credibility in executing value-accretive deals, supporting confidence that future M& A will align with its long-term ROCE and TSR objectives Maintain BUY and TP of USD3.00

What&rsquo s New

Robinsons Retail Holdings Inc (RRHI) just announced the acquisition of DFI Retail Group&rsquo s entire 22.2% stake in RRHI for PHP50 per share, totalling PHP15.8bn (~USD283mn), as part of its share buyback programme. The transaction price represents a 36% premium over the last closing price of PHP36.70 and was mutually agreed upon by both parties, reflecting prevailing market conditions and strategic considerations. The deal was funded through a mix of internal resources and external borrowings. The transacted value is 14% above DFI&rsquo s carrying value of USD247.7mn as of end-Dec 2024, implying a potential one-off gain of ~USD35mn. However, the company is expected to book a FX loss as a result of PHP depreciation against USD since the time of RRHI share purchase. Net-net, it expects to see a minor net non-trading loss. DFI&rsquo s stake in RRHI contributed USD17mn to core earnings and generated USD10.6mn in dividends in FY24.

Our views

Given management&rsquo s clear preference for being an operator rather than a passive investor, we believe the divestment of the RRHI stake had likely been in consideration for some time. That said, credit is due for executing the sale at a 36% premium to the prevailing market price&mdash a commendable outcome. We expect RRHI to contribute to core earnings for 4Q24 through to May 2025, amounting to an estimated ~USD17mn, in line with FY24. Accordingly, there could be upside to our current earnings forecast, driven by potential interest income from the USD283mn in sale proceeds. At a 3% annualised yield, this equates to ~USD5mn over the remaining seven months of FY25, representing ~2% of our above-consensus FY25 core earnings forecast of USD259mn. Overall, we view this as a strategically positive step. With the RRHI stake sold, DFI&rsquo s operations are now almost entirely within management&rsquo s control, allowing for greater operational focus, improved performance stability, and more flexibility to drive revenue and margin initiatives. Importantly, the transaction also enhances management&rsquo s credibility in executing value-accretive deals, supporting confidence that future M& A activity will align with its long-term ROCE and TSR objectives. Maintain BUY and TP of USD3.00.

The divestment will enable DFI to redeploy capital to support growth and enhance shareholder returns across its subsidiaries, says group

 

[SINGAPORE] DFI Retail Group : D01 +2.99% said on Friday (May 30) that it has divested 22.2 per cent &ndash or about 315.3 million &ndash of Robinsons Retail&rsquo s outstanding shares for an undisclosed sum.

 

DFI became a significant minority shareholder in Robinsons Retail in 2018 through a share-for-share swap transaction involving Rustan Supercenters. Rustain Supercenters is an operator of food retail formats and supermarkets in the Philippines.

 

&ldquo This transaction reflects DFI&rsquo s strategic pivot from a portfolio investor to a focused operating company, enabling the group to divest minority positions and redeploy capital to support the growth and higher returns of subsidiary businesses,&rdquo it said.

 

Following this divestment, DFI said it will review the use of the divestment proceeds to support its capital allocation strategy and long-term growth priorities. These include, but are not limited to, expanding digital retail media, advancing own-brand innovation, and enhancing omnichannel capabilities across its key markets.

 

The group added that it remains confident in Robinsons Retail&rsquo s long-term prospects and the &ldquo continued success&rdquo of their exclusive distribution of the Meadows and Guardian brands.

 

Scott Price, DFI Retail&rsquo s group chief executive, said its collaboration with the Robinsons Retail team has been &ldquo instrumental&rdquo in growing the group&rsquo s presence in the Philippines, with the transaction representing a &ldquo significant step&rdquo in DFI&rsquo s evolution as an operating company.

 

The transaction was executed via a special block sale on the Philippine Stock Exchange, with the agreed price based on prevailing market conditions and strategic considerations, the group stated.

Yonghui Superstores contribute US$23 million to the group&rsquo s earnings in the corresponding period a year ago

 

[SINGAPORE] DFI Retail Group&rsquo s : D01 -1.47% underlying profit for Q1 2025 fell 18 per cent compared with the same period a year ago, due to the divestment of Yonghui Superstores last year.

 

The Chinese supermarket operator contributed US$23 million in earnings in the corresponding period a year ago.

 

Excluding the divestment, the underlying profit of the mainboard-listed group rose 28 per cent for Q1 compared with a year ago.

 

DFI Retail Group said in a bourse filing on Monday (May 19) that it continues to expect its underlying profit for FY2025 to be between US$230 million and US$270 million, supported by an organic revenue growth of about 2 per cent.

 

The group&rsquo s underlying subsidiary sales for Q1 of FY2025 were stable on a like-for-like basis, with strong performance in the health and beauty segment offset by lower contributions from other divisions. The underlying subsidiary sales exclude the impact of Hong Kong&rsquo s cigarette tax and the divestment of its Hero Supermarket business in Indonesia.

 

Within its home market of Hong Kong, the group saw its like-for-like sales down by 2 per cent for Q1, compared with a year ago. The group noted that growth in the market &ldquo slowed noticeably&rdquo in Q1, even as cross-border travel between Hong Kong and China has continued.

 

Operating performance

Sales in DFI Retail Group&rsquo s health and beauty division for Q1 were up 4 per cent compared to a year ago, with all operating markets reporting positive like-for-like sales growth. Pharmacy chain Guardian continued to deliver strong performance across key markets, particularly in Indonesia, which achieved double-digit growth in both like-for-like sales and profit.

 

However, like-for-like sales in its convenience division fell 6 per cent year-on-year. Cigarette sales slowed after a tax increase was imposed on cigarette sales in Hong Kong last February. Overall, non-cigarette sales on a like-for-like basis were down 2 per cent compared with Q1 2024.

 

Similarly, DFI Retail Group&rsquo s food division reported marginally lower sales this quarter. Sales in this division remained largely stable year on year in the Hong Kong market due to growth from omnichannel sales. The division posted a 14 per cent year-on-year increase, supported by growth in its Singapore food business.

 

The group said that its home furnishings division reported a significant recovery in its underlying profit despite intense competition. This was due to effective cost control measures across markets. For example, Ikea Hong Kong is strengthening its omnichannel proposition to compete better with digital players from mainland China, while Ikea Indonesia remains focused on expanding its sales through digital channels.

 

&ldquo The group believes that Ikea remains well-positioned to capitalise on a recovery in demand for home furnishings when market conditions improve, given its strong brand equity and commitment to consumer protection and product safety,&rdquo it said.

 

DFI Retail Group added that the divestment of its food business in Singapore, which includes the Cold Storage, CS Fresh, Jason&rsquo s Deli and Giant brands, will be completed by the end of 2025 and will strengthen the group&rsquo s balance sheet.

While the group has a seemingly formidable portfolio of retailing brands, its shares have delivered a negative total return of 65.8% over the past 10 years

 

[SINGAPORE] Some investors might have been perplexed when DFI Retail Group : D01 +1.27% said earlier this week that it had agreed to sell its Cold Storage and Giant stores in Singapore for S$125 million.

 

For one thing, DFI has been associated with these well-known brands for several years. More to the point, the announcement came only a fortnight after the company reported headline financial numbers for 2024 that seemed to indicate the whole group &ndash including its Singapore food business &ndash is turning around.

 

Upon closer examination, however, the deal seems to dovetail with DFI&rsquo s broad strategy of pruning its business portfolio, investing in technology and harnessing data to drive profitability.

 

On Mar 10, the company said its underlying earnings attributable to shareholders for 2024 increased 29.8 per cent to US$200.6 million &ndash or US$0.149 per share. The group&rsquo s underlying operating profit was up 16.8 per cent at US$343.1 million, while revenue slipped 3.3 per cent to US$8.87 billion.

 

DFI&rsquo s total dividend for 2024 increased 31.3 per cent to US$0.105 per share.

 

The group&rsquo s health and beauty division &ndash which includes its Mannings and Guardian stores &ndash contributed operating profit of US$210.8 million, down 0.8 per cent against the previous year.

 

Its convenience stores achieved a 16.6 per cent increase in operating profit to US$102.3 million, while operating profit contribution from its home furnishing stores was down 13 per cent at US$16.1 million.

 

The group&rsquo s food business saw a 27.6 per cent increase in operating profit to US$57.8 million. Among the factors cited for the improved performance was that its Singapore food business turned profitable in Q4 2024.

 

DFI is guiding for underlying profit attributable to shareholders of between US$230 million and US$270 million in 2025 &ndash which implies growth of 24.6 per cent at the midpoint.

 

CGS International subsequently raised its target price for DFI shares from US$1.85 to US$2.71 while RHB pushed its target price up from US$2.70 to US$2.79.

 

So, why is DFI selling its Cold Storage and Giant stores in Singapore? Wouldn&rsquo t it make more sense to hold on to them and ride the turnaround in profitability?

 

While the company has a seemingly formidable portfolio of retailing brands, it has been a terrible play on Asian consumer spending &ndash as a result of technological change, shifting consumer behaviour and intense competition.

 

During the 10-year period up to the day before the sale of its Singapore food business was announced, DFI&rsquo s shares delivered a negative total return of 65.8 per cent. The only other component of the Straits Times Index that performed worse over the same period was Seatrium : 5E2 -0.46% (formerly Sembcorp Marine), with a negative total return of 92.9 per cent.

 

To strengthen its position, DFI has been shrinking its portfolio and refocusing resources on its most promising businesses.

 

For instance, the group completed the sale of its Hero Supermarket business in Indonesia in June 2024. It is now fully focused on its Guardian and Ikea businesses in that market.

 

DFI also said in September 2024 that it would sell its associate stake in Yonghui Superstores for nearly 4.5 billion yuan (S$829 million). The divestment was completed in February, and put the group in a net cash position.

 

With the sale of its Singapore food business announced this week, DFI plans to pivot its focus and resources to its Guardian and 7-Eleven businesses in the city-state.

 

Interestingly, the buyer of DFI&rsquo s Singapore food business &ndash a retailing group called Macrovalue &ndash also bought its Cold Storage, Giant and Mercato stores in Malaysia back in 2023.

 

&ldquo We firmly believe that Macrovalue is ideally positioned to drive the next phase of growth for the Singapore food business with its expanded scale and procurement power across both Malaysia and Singapore,&rdquo said DFI&rsquo s group chief executive, Scott Price, in a statement on Mar 24.

 

With a stronger balance sheet, the group is in a better position to expand the market shares of its remaining businesses and boost their profitability.

 

DFI noted in a recent financial performance review that it had rolled out more than 20 new channels in 2024 for customers to access its retail portfolio &ndash spanning apps, websites and third-party platforms.

 

Among them is a new 7-Eleven app in Hong Kong that had garnered some 137,000 monthly active users and 30,000 daily active users in December. Another of these new channels is supermarket chain Wellcome&rsquo s quick-commerce partnership with foodpanda.

 

DFI is also leveraging data from its yuu Rewards loyalty programme to drive sales and boost profit margins through improved assortment at its stores.

 

The yuu Rewards programme now has 5.3 million members in its home market of Hong Kong, and 1.8 million members in Singapore.

 

DFI also highlighted its fledgling retail media network, which offers integrated online and offline advertising. It said more than 100 marketing campaigns had been sold since the business was launched in Q1 2024, with supplier partners that included Procter & Gamble, Unilever and Coca-Cola.

 

DFI described the business as &ldquo a potentially significant source of profit&rdquo .

 

Long story short, the company is modernising and retooling its retailing operations to thrive in the 21st century. Letting go of the Cold Storage and Giant stores is just part of that journey.

 

DFI shares closed on Wednesday (Mar 26) at US$2.39 &ndash or 16 times its 2024 earnings per share. Based on its total dividend for 2024, the company&rsquo s shares offer a yield of 4.4 per cent.

Analysts forecast a potential special dividend of at least US$0.04 per share

[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 &ndash which includes a total of 89 Cold Storage and Giant stores and two distribution centres &ndash for a S$125 million initial purchase consideration, subject to adjustments.

 

&ldquo 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,&rdquo said CGS International analysts Meghana Kande and Lim Siew Khee.

 

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

 

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

 

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.

 

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

 

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

 

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

 

After the transaction, DFI&rsquo 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&rsquo s Singapore food business comprises 48 Cold Storage stores &ndash which includes the Cold Storage, CS Fresh, and Jason&rsquo s Deli brands &ndash 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 &ldquo hold significant potential for growth&rdquo . 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.

DFI Retail Group has reported a loss of US$244.5 million ($325.41 million) for FY2024 ended Dec 31, 2024, a reversal from the US$32.2 million in earnings reported in the same period a year ago. 

 

The group&rsquo s reported results were impacted by non-trading losses attributable to shareholders of US$445 million. This was due to a loss of US$114 million which is associated with the divestment of Yonghui, a US$231 million impairment of interest in Robinsons Retail and US$133 million goodwill impairment of Macau and Cambodia Food businesses. 

 

The group&rsquo s underlying profit attributable to shareholders for FY2024 stood at US$200.6 million, up from the US$155 million reported in FY2023. 

 

The group says that despite the large non-trading losses reported, it is now in a net cash position following the completion of the Yonghui transaction in February 2025. 

 

DFI&rsquo s revenue for FY2024 came in at US$24.9 billion, down 6% y-o-y due to lower sales at Yonghui. 

 

Its subsidiaries&rsquo underlying profit attributable to shareholders for FY2024 came in at US$158 million, 42% y-o-y higher due to significant earnings recovery in Singapore Food and favorable product mix shift towards non-cigarette categories in its convenience business. This was partially offset by lower contribution from Home Furnishings as a result of weak property market activity and intensifying competition. 

The group&rsquo s share of underlying profit from associates for FY2024 was US$43 million, down 2% y-o-y. Lower contribution from Maxim&rsquo s due to weaker mooncake sales and restaurant performance in the Chinese mainland was partially offset by reduced losses from Yonghui and a 15% profit growth at Robinsons Retail.

 

DFI&rsquo s operating cash flow after lease payments of US$331 million, 21% y-o-y lower due to unfavourable movement in working capital year-end timing difference, partially offset by underlying operating profit growth. Operating cash flow after lease payments and normal capital expenditure was US$158 million, down 29% y-o-y.

 

The board has recommended a final dividend for FY2024 of 7 US cents per share, higher than the FY2023 final dividend of 5 US cents per share. 

 

The group says that it expects underlying profit attributable to shareholders to be between US$230 million and US$270 million in 2025.