DFI Retail Group Holdings Ltd: Key takeaways from DFI’s investor day
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- Lift TP to USD4.50 (from USD3.90) on higher valuation peg of 21x (from 18x) given well-defined earnings targets, sensible strategy and higher dividend payout ratio
- Trial of health assessment service and visit to revamped Guardian store, to be rolled out to more stores, boost our confidence in strong growth outlook for Health & Beauty
- Earnings target of USD310–350mn by 2028 looks highly achievable, with our FY27F estimates aligned with the bottom end of guidance
- Dividend payout guidance lifted from 60% to 70%
We attended DFI’s inaugural investor day and visited its revamped 7-11 and Guardian stores in Singapore. We summarised our key takeaways as below.
Health & Beauty
Tapping on the high growth wellness trend. Derma, haircare and supplements are the key product categories the company is prioritising. It has introduced free skin, scalp and overall health assessments at Mannings stores in Hong Kong, which have seen strong initial traction. Management cited a 50% conversion rate for users who tried the health pod and 70% for those who underwent the skin and scalp assessments. Having tested some of these services ourselves, we are convinced of their high conversion potential. The company plans to roll out these programmes to more stores both within and outside Hong Kong, targeting coverage of 25% of the store network by 2028.
New store growth driven by franchise model in Indonesia. With high market penetration in Hong Kong and Singapore, the company sees greater headroom for new stores in Indonesia, where it is targeting an increase to 750 stores by 2028. This represents more than a doubling of the Indonesia Guardian network from 341 stores as at end 2024.
Revamped store layout to drive sales. We also visited a recently refreshed Guardian store at Marina Bay Sands (MBS) and came away impressed by the cleaner and more thoughtful layout. Supplements are now organised by function with more experiential zones, instead of the previous approach of packing the store with products. We believe this format, which will be rolled out to more stores, will significantly enhance the shopping experience and support repeat visits.
Targeting 4–6% FY25-28 sales CAGR and 9–11% operating margin by 2028. Having experienced the health assessment tools and viewed the revamped store, we are confident the company can deliver around the midpoint of its 5% sales growth target for FY26F and FY27F. We keep our margin assumptions more conservative at 8.7% in FY26F and 8.8% in FY27F to reflect potential manpower cost increases to staff the health assessment areas and higher depreciation from store upgrades.
Convenience
Higher ready to eat (RTE) mix. As highlighted in our earlier report, the company is strengthening its value proposition in the RTE category with a wider rollout of its smoothie machines being one of its many initiatives. It is also expanding its hot food range and has introduced new items such as kimbap at an attractive price point of SGD3.50. To stay differentiated, it is bringing in a range of unique exclusive SKUs and partnering with distinctive IPs for products like blind boxes. The store layouts are also being reviewed, with revamped stores seeing improved RTE penetration.
Increased store network in South China to drive growth. We previously identified Tier 2 cities such as Foshan, Zhongshan and Zhuhai as near-term white-space growth opportunities. The company is now targeting a 30% increase in its South China store base, from 1,833 as of end 2024 to 2,400 by 2028.
Targeting 6–8% FY25–28 sales (ex cigarettes) CAGR and 5–6% operating margin by 2028. Including cigarette sales, which we assume will see a low single digit decline, we estimate overall FY25–28 sales CAGR for the segment will be closer to 4–5%. This is broadly in line with our current forecasts of 3.6% and 4.0% for FY26F and FY27F. Taking a more conservative stance, we expect margins to gradually move towards the 5% level, reaching 4.4% in FY26F and 4.7% in FY27F.
Food & Home Furnishing
Focus on value. Both the Food and Home Furnishing segments in Hong Kong face intense price competition from Mainland China. To win customers back, the company is investing in pricing to narrow the gap between Hong Kong and Mainland products. In Food, it has already reduced the price gap versus the Greater Bay Area to around 5% as of Sep 2025. In Home Furnishing, it is targeting to narrow the gap on a full landed cost basis (including delivery and assembly) to 5–10%, from about 20–25% currently.
For Food, the company is targeting 1–3% FY25–28 sales CAGR and a 2.5–4.0% operating margin by 2028. This is in line with our conservative assumptions of 1% sales growth in FY26F and FY27F, and margin expansion to 2.0% in FY26F and 2.2% in FY27F, approaching the low end of the 2.5% range.
For Home Furnishing, the company is targeting 1–3% FY25–28 sales CAGR and a 4–6% operating margin by 2028. Given more work is needed to close the pricing gap and restore growth, we conservatively assume a 1% decline in sales in FY26F, before a rebound to 2.9% growth in FY27F as pricing becomes more competitive and the planned new store in Taiwan ramps up. We expect margins to gradually improve to 3.7% in FY26F and 3.9% in FY27F.
Overall
Targeting core earnings of USD310–350mn by 2028. Apart from the above stated top-line and margin expansion growth drivers, management also indicated SG&A cost optimisation as potential avenue for earnings accretion. It is targeting USD30-35mn in cost savings by 2028.
Increase dividend payout ratio from 60% to 70%. Management officially increased its FY dividend payout ratio and ruled out possibility of special dividend in the next 24 months. However, should it be unable to identify any potential accretive M&A target within the 24 months timeframe, it could return excess cash through special dividends. Accordingly, we raised our dividend payout assumptions for FY26F and FY27F to 15UScts and 16.5UScts respectively.
Lift TP to USD4.50 (from USD3.90) on higher valuation peg. We used a higher valuation peg to 21.1x, +0.5SD of its 10-year average, given well-defined earnings targets, sensible strategy and higher dividend payout ratio.
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