DFI beats Q1 estimates, but analysts warn of moderating growth

[SINGAPORE] Analysts maintained their buy on DFI Retail Group after the Asian retailer’s Q1 results beat their expectations, although at least one analyst warned that the conglomerate’s growth could moderate in the coming quarters.

The counter was the largest gainer on the Straits Times Index (STI) on Wednesday (Apr 22), a day after it reported 49 per cent growth in profits from continuing operations for Q1.

The counter closed US$0.19 or 4.6 per cent higher at US$4.35 on Wednesday.

Analysts from DBS and CGSI maintained a “buy” on it and left their target prices unchanged for the counter. CGSI’s target price is US$5.50, and DBS’, US$5.  

However, DBS warned that growth is likely to moderate in coming quarters.

Ahead of expectations

DBS analyst Chee Zheng Feng said the brokerage expects DFI to turn in an underlying profit of US$292 million in FY2026. The group’s latest result implies that it is currently “tracking ahead” of DBS’ expectations, he added.  

He noted that DFI’s  strong growth in Q1 was partly driven by “significantly lower” financing costs. This was after the company paid down its US$617 million debt in February 2025 with the proceeds of its Yonghui divestment.

Chee said that earnings growth is likely to moderate in the coming quarters. 

However, he expects the company to continue benefiting from “structurally lower” finance costs following the sale of its Singapore food business, which should reduce its lease liabilities.

DFI sold all its Cold Storage and Giant outlets and two distribution centres to Malaysian retail group Macrovalue for S$125 million in March 2025.

CGSI analyst Meghana Kande said that the group’s strong performance for the quarter also outperformed the brokerage’s estimates, supported by “broad-based” growth by its convenience, food and home furnishing segments.

The health and beauty segment led with 7 per cent year-on-year sales growth from higher transactions and bigger basket sizes, which was underpinned by better wellness sales in South-east Asia.

Zheng said that although this segment is DFI’s most profitable, it came under margin pressures from stiffer competition in Malaysia; however, its softened performance will be offset by growth in its other segments. 

The convenience segment booked 1 per cent growth in Q1, including from cigarette sales, which was supported by sales in higher-margin non-cigarette categories. 

The food business remained stable, with core Hong Kong operations delivering 1 per cent sales growth on a constant-currency basis, Zheng noted.

Kande attributed this to “value-seeking consumer behaviour offsetting volume growth” and double-digit year-on-year growth from network expansion in Cambodia. 

As operating profit for the quarter outpaced revenue growth in all but the health and beauty segment, the retail chain appears on track to fulfil analysts’ FY2026 forecasts. It also looks set to generate underlying profits of between US$270 million and US$300 million, and to achieve 2 to 3 per cent organic revenue growth.

Kande said the unchanged estimates signalled “confidence in weathering war-driven cost pressures”. 

The group is also on track to attaining its return on capital employed target, or profit generated from its total capital, of above 15 per cent, said both analysts. 

ParknShop acquisition

DFI parent company Jardine Matheson is looking into acquiring ParknShop, the second-largest supermarket chain in Hong Kong and Macau, and merging it with DFI’s Wellcome brand. 

No consideration for the speculated deal has been disclosed, but it needs to be below US$300 million to be attractive to DFI investors, said Kande.

She said that, given the low profile of the group’s food segment in Hong Kong relative to its other segments, the merger and acquisition “would need a heavy valuation discount to be palatable to investors”.

ParknShop has 230 outlets in Hong Kong, behind DFI’s Wellcome’s 280 stores. The former has been operating at a loss since 2023, and just turned positive in its Ebitda (earnings before interest, tax, depreciation and amortisation) in 2025.