DBS Group Research analyst Chung Wei Le has maintained “buy” on chocolate confectionery maker Delfi with a higher target price of $1.06 from 96 cents previously.
The analyst says he remains “cautiously optimistic” that Delfi would be able to exceed its level of sales pre-Covid-19 in the FY2022 amid easing restrictions in Indonesia.
In an Aug 12 report, Chung explains that the higher target price is due to the rolling forward of his price-to-earnings (P/E) peg to a 50/50 blend of FY2021 and FY2022 earnings.
Chung has kept his P/E peg at 18.0 times, which is -0.6 standard deviation (s.d.) below Delfi’s four-year historical mean.
For the 1HFY2021 ended June, Delfi reported earnings of US$12.3 million ($16.7 million), 13.7% higher than that of the earnings in the year before.
The figure stood slightly below Chung’s expectations. Accordingly, he has lowered his earnings estimates for the FY2021 and FY2022 by 7% and 2% respectively.
To him, Delfi’s valuation is inexpensive at 12.6 times FY2022 P/E, which is -1.5 s.d. of its four-year historical mean.
The chocolate maker’s valuation is also trading at a discount to its Indonesian-focused peers’ 17.7 times FY2022 P/E.
Indonesia’s Consumer Confidence Index, which tends to influence Delfi’s share price, also bottomed in May 2020.
According to Chung, the counter offers a yield of 3.8%.
“We believe sustained earnings per share (EPS) growth will lead to [the] resumption of the relationship between Delfi’s trailing-12-months (TTM) EPS and share price,” he adds.
Furthermore, Delfi’s initiatives to target younger individuals in Indonesia through the redesigning of its homegrown brand, SilverQueen, as well as the introduction of two new healthier products, will allow the brand to capitalise on Indonesia’s growing millennial middle-class market, Chung notes.
Shares in Delfi closed flat at 84.5 cents on Aug 16, with an FY2021 P/B ratio of 1.6 times and a dividend yield of 3.7%, according to DBS’s estimates.
