Price target from DBS in Nov:

DBS: DFI Retail Group Holdings Ltd &ndash Buy Target Price US$3.80

   

RHB Bank Singapore analyst Alfie Yeo is keeping his & ldquo overweight& rdquo call on the retail-staples sector as he sees stronger consumption on the cards.

   

& ldquo Our economics desk estimates Singapore& rsquo s 2023 GDP growth forecast at 1.5% before accelerating to 3% in 2024 & ndash driven by with an improving external environment,& rdquo says Yeo in his Jan 3 report.

   

& ldquo This should translate into more positive consumption and income from the workforce eventually, as domestic industries recover and benefit from a more robust global demand,& rdquo he adds.

   

Within the sector, Yeo has named Sheng Siong Group OV8 -0.64% and DFI Retail Group D01 0.00% (formerly Dairy Farm) as his top picks. The analyst likes Sheng Siong for its stable earnings and dividends and DFI for its earnings turnaround and strong dividend yield.

   

The analyst, who has & ldquo buy& rdquo calls for both counters, sees valuations at 13 to 17 times FY2024 P/Es as & ldquo currently compelling& rdquo . Both Sheng Siong and DFI have dividend yields of 4% to 6%. Sheng Siong has an earnings growth outlook of 7% while DFI& rsquo s is 17%.

   

Furthermore, the latest reported earnings for both counters during the 3QFY2023 were largely in line with Yeo& rsquo s expectations. Both counters& rsquo year-ends are in Dec 31.

   

& ldquo Revenue growth was driven by new outlets for Sheng Siong, while for DFI, tourist recovery to Hong Kong and demand recovery drove strong same-store sales growth at Mannings and its convenience division,& rdquo says Yeo. & ldquo There were minimal changes to our earnings forecasts post 3QFY2023 earnings as results were within expectations.& rdquo 

   

Following the Covid-19 pandemic, the analyst sees supermarket sales to be normalised going forward.

   

& ldquo Revenue growth for the sector is now largely at a more normalised and moderated pace from abnormal levels seen during Covid-19 restrictions. We hence expect low to mid-single digit revenue growth for Singapore grocery retail sales for 2024, with the index at around 120-point levels,& rdquo he writes.

   

In the next six months, there will be eight new Housing & Development Board (HDB) supermarkets up for bidding albeit reducing the pipeline of planned new HDB supermarkets to two in the 2H2024.

   

& ldquo Nonetheless, the robust supply that is expected to come on stream in the shorter term will benefit supermarket players a whole, offering more opportunities for grocery retail players overall to win more new outlets,& rdquo says Yeo.

   

& ldquo Our investment thesis on DFI is based on earnings recovery (18% earnings compound annual growth rate or CAGR growth from FY2023 to FY2025) at a compelling valuation. We anticipate a recovery in FY2024 & ndash driven by an expected pickup in demand in the various markets, and improving domestic consumption,& rdquo he adds. & ldquo Dividend yield is attractive due to parent company Jardine Matheson Holdings J36 0.17% & rsquo practice of uplifting dividends back to the group level. We see earnings driven by sturdy domestic consumption and a pick-up in tourism in Hong Kong, on top of the continued economic recovery in Asean and China.& rdquo 

   

Based on Yeo& rsquo s estimates, DFI is currently trading at an attractive 14 times FY2024 P/E versus his implied target P/E of 17 times.

   

On Sheng Siong, the analyst sees the group growing via its new outlets, the performance of its new stores and better operating efficiency with plans for a new distribution centre.

   

& ldquo Outlook is positive, based on domestic supermarket consumption, new store outlook, and its China operations. Sector risks include margins pressure from higher-than-expected operating costs and/or consumer demand,& rdquo he says.

   

Yeo has a target price of $1.99 for Sheng Siong and US$2.92 ($3.88) for DFI.