The team at DBS Group Research is keeping its “buy” call on DFI Retail D01 with an unchanged target price of US$3.90 ($5.24) after The Edge Markets announced that the group will be exiting its grocery retail business in Malaysia.
The sale will be made via DFI Retail’s 70% stake in GCH Retail (Malaysia) Sdn Bhd (GCH Retail). The remaining 30% of GCH is owned by Syarikat Pesaka Antah Sdn Bhd, according to the article.
The sale price is said to be “at least a couple of billion ringgit”.
DFI Retail first entered Malaysia in 1999 via the purchase of 90% stake in the Giant business. The business has been making losses since 2013. The business only made a net profit of RM12.23 million ($3.7 million) in FY2020, which makes up about 1% in DFI’s FY2020 net profit.
Giant’s revenue came up at around 6% of DFI Retail’s net sales in FY2021.
To the team at DBS, the divestment is a “positive step in improving margins and the strengthening of [its] balance sheet”.
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“Management is heading in the right direction with its focus on profitability over growth. We are hopeful that the recovery in Hong Kong’s businesses (health & beauty, convenience stores and restaurants) will more than offset the decline in revenue from the divestment of the Malaysia grocery business,” writes the team.
The team adds that it is expecting DFI to report “underwhelming” results for the FY2022 next week.
“Instead of FY2022 performance, we are more keen on management’s view on its outlook, particularly with the easing of restrictions in Hong Kong and China, a significant pivot from its last update in November,” the team says.
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“For FY2022, we expect significant earnings decline due to ongoing transformation costs and adverse Covid impact in Hong Kong during 1HFY2022. We believe these negatives have been priced in and will set the stage for a strong recovery in FY2023,” it adds.
As at 11.38am, shares in DFI Retail are trading 6 US cents lower or 1.91% down at US$3.09 ($4.15).
