Analysts are positive on Delfi after its core net profit of US$19.4 million ($26.6 million) for the 1HFY2022 ended June stood at a record-high. The figure was also a strong beat to street estimates post-disposal of its cocoa ingredients unit in FY2015.
CGS-CIMB Group Research analysts Tay Wee Kuang and Izabella Tan have kept an “add” rating on Delfi with an increased target price of $1.28 from $1.09.
Delfi’s 1HFY2022 revenue of US$246.3 million was ahead of expectations at 56.6% and 56.5% of Tay and Tan’s and consensus’ FY2022 estimates respectively, in addition to surpassing pre-Covid-19 levels of US$226.9 million in 1HFY2019.
The analysts observe that the resilient sales momentum was spurred by the economic recovery post-pandemic with revenue growth recorded across all markets and across Delfi’s own and agency brands.
“Revenue growth of 17.0% y-o-y outpaced opex growth of 5.7% y-o-y, allowing Delfi to enjoy operating leverage, as it recorded core net profit of US$19.4 million up 61.5% y-o-y in 1HFY2022, beating expectations at 74.3% and 72.2% of our and consensus’ FY2022 estimates,” write Tay and Tan.
“We share management’s optimism on the growth prospects of its key operating markets in Indonesia and the Philippines, where healthy GDP growth expectations could continue to support higher consumption levels of chocolate confectionery and adjacent food categories,” say the analysts.
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Furthermore, Delfi’s revenue growth of 16.1% in Indonesia, where it is the market leader with a around 40% share of retail value in the confectionery space, had outpaced the market’s growth, according to management. “This reinforces our confidence that Delfi is in a prime position to capture potential growth opportunities, especially with its established sales channels across these markets,” say Tay and Tan.
Despite rising costs of raw materials, Delfi saw its gross profit (GP) margins remain resilient at 29.4% up 0.4% y-o-y. “The management said it will continue to keep a close eye on costs of goods sold (COGS), but opex is likely to trend upwards as Delfi reinvests into the business by resuming sales and marketing expenses that were deferred during the pandemic,” write the analysts.
“We increase our FY2022, FY2023 and FY2024 earnings per share (EPS) by 26.5%, 24.4% and 24.3% respectively as we foresee lasting operating leverage on sustained revenue momentum, which would support attractive dividend yields of around 5%,” say Tay and Tan. The analysts add that the interim dividend of 2.18 cents/share implies an attractive annualised yield of around 5.5% at 50% payout ratio, in line with historical payout levels.
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“We upgrade our earnings on the back of better revenue growth expectations while margins normalise,” they add.
The team at DBS Group Research has kept a “buy” rating on the stock, with a raised target price of $1.31 pegged at 17x FY2022/2023 earnings (average of its four-year mean forward P/E). Delfi currently trades at an attractive valuation of 10.4x FY2022 P/E (below -1 standard deviation or s.d. from the four-year mean forward P/E), along with around 25% of its market capitalisation in net cash.
Following the group’s special dividend in 2HFY2021 and with its strong rebound in earnings, the counter is offering a 4%-5% yield based on current prices.
“With its strong balance sheet, we believe the company has an opportunity to pursue inorganic growth strategies,” the team writes. “In the near term, we believe a clearer signal to enhance shareholder value via a higher payout ratio and/or a share buyback programme could be constructive for its share price.”
“We believe the adoption of the latter would signal to the market that the management believes the current share price is undervalued,” they add.
Some risks that the team foresee include a large loss of market share, inflationary pressure causing higher-than-expected rise in input costs and impact on consumer sentiment or purchasing power.
As at 2.55pm, Delfi is trading at 0.5 cents up or 0.63% higher at 80 cents.
