CGS-CIMB Research analysts Tay Wee Kuang and Izabella Tan are keeping “add” on Delfi Limited after it reported a record set of results for the 3QFY2022 and 9MFY2022 ended Sept 30.
On Nov 15, Delfi posted a patmi of US$7.5 million ($10.27 million) for the 3QFY2022, representing a 539% surge y-o-y.
The company’s quarterly revenue, which grew by 28.7% y-o-y to US$112.0 million, was supported by a record US$42 million from regional markets, the Philippines, Malaysia and Singapore.
According to Tay and Tan, Delfi’s record regional figures were likely due to the successful launch of its “Better for You” campaign.
The company’s patmi for the 9MFY2022, at US$26.9 million, beat the analysts’ FY2022 forecasts at 82%, suggesting lower non-operating expenses, such as depreciation and amortisation.
“We note that [Delfi]’s year-to-date (ytd) capex of US$2.0 million is significantly lower than FY2021’s US$6.9 million,” they write.
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On this, Tay and Tan have upped their earnings estimates for the FY2022, FY2023 and FY2024 by 4.3%, 3.5% and 4.2%. This is due to their expectations of seeing lower administrative expenses, which include depreciation and amortisation.
That said, the analysts have lowered their target price to $1.26 from $1.28 previously due to a lower P/E multiple of 15x, which is slightly below Delfi’s five-year mean. The lower P/E multiple was reduced from 17x previously as the analysts roll their valuation to FY2024.
To them, Delfi is currently trading at an “attractive” forward P/E of 9.5x, 1 standard deviation (s.d.) below its historical average. At its current share price levels, Delfi is also trading at a “steep discount” to its peers’ average of 20x, while providing a yield of 5% based on its 50% payout ratio.
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The company’s payout ratio is supported by its strong net cash position of US$67.3 million, the analysts note.
In the upcoming 4QFY2022, while the company traditionally enjoys a stronger season due to the holidays, Delfi has cautioned about the potential macro headwinds such as currency volatility, supply chain bottlenecks and inflationary pressures.
“Although Delfi undertakes commercial strategies such as product resizing and price adjustments to protect its margins, we think the company may have to absorb any drastic cost increases that could disrupt consumption behaviours, especially if economic conditions deteriorate,” the analysts write.
“Purchases of raw material are also typically denominated in US dollars (USD) and the strong USD could compound cost pressures,” they add. “Nevertheless, Delfi has mentioned that its Premium format category has observed better sales growth, supporting its strategy of product premiumisation that tends to be more demand inelastic.”
The way the analysts see it, a swifter revenue growth momentum could serve as a positive catalyst to the company’s share price. On the other hand, cost spikes and a slowdown in sales momentum are downside risks.
As at 12.09pm, shares in Delfi are trading flat at 77 cents.
