DFI Retail’s Starbucks deal offers ‘earnings stability’ despite near-term hit: analysts
[SINGAPORE] Although DFI Retail Group’s earnings are expected to take a near-term hit from its full acquisition of the Starbucks licence, the deal should provide the Asian retailer with greater “earnings stability” over the longer term, analysts said.
Reflecting this view, at least three brokers – CGS International (CGSI), Citi and DBS – maintained their “add” calls on the mainboard-listed counter.
DBS, however, lowered its target price for DFI to US$4.50 from US$5, citing a near-term earnings shortfall as the company reorganises its Maxim’s stake and regional Starbucks licence.
The downgrade followed a DFI analyst briefing on Thursday (Oct 1) morning that detailed the reorganisation, which was announced the previous evening.
In a Friday note, DBS warned that incoming Starbucks revenue will not immediately offset initial integration costs and the loss of Maxim’s associate profit. It forecast a US$43 million net earnings shortfall in FY2027, even though the transaction completes DFI’s transition into a fully operational company and brings in US$340 million in cash.
Still, DBS maintained a “buy” call on the stock’s long-term operational pivot.
Meanwhile, CGSI kept its US$5.50 target price for the counter in a note published late Wednesday night, before the analyst briefing.
While CGSI also anticipated near-term earnings dilution, it emphasised that DFI’s decision to raise its dividend payout ratio to 80 per cent starting in 2027 – along with the US$340 million cash injection – would help protect shareholder returns.
During Thursday’s briefing, management outlined plans to turn the Starbucks licence into a “billion-dollar business” by opening 250 new stores over the next three years, focusing on high-growth markets such as Vietnam and Thailand.
DFI is targeting 6 to 7 per cent annual top-line growth for the coffee chain and intends to defend its premium positioning, rather than enter price wars with fast-expanding competitors. It also aims to leverage its existing 7-Eleven and retail network to unlock procurement and rental network effects.
After the briefing, Citi on Thursday maintained its US$4.80 target price for the retailer. It viewed the transaction as the final step in DFI’s transformation into a 100 per cent operational company, trading volatile joint-venture profit sharing for a stable, directly managed business.
“The Starbucks-licensed business adds earnings stability given its track record, as compared to profit sharing from Maxim’s which faces industry headwinds,” said Citi.
Looking ahead, DFI management said it will evaluate potential merger and acquisition targets using the US$340 million cash consideration. If it does not identify suitable opportunities within the next six to 12 months, it plans to return the capital to investors.
Returning the entire US$340 million could result in a special dividend of about US$0.25 per share, estimated DBS.
