SINGAPORE (Feb 24): RHB is downgrading Delfi to “hold” with a target price of $2.55 as it does not see any strong catalyst for the stock to outperform in the short run stock given it is currently trading at 32 times FY17 forecast earnings.
Still, RHB sees gross margin expansion to sustain at least in 2017. Currently, cocoa prices are still at multi-year lows and Delfi has now engaged on a forward buying programme which they secure more of its raw materials when the prices are favourable.
This should help Delfi to lock in some of its cost of goods sold. In 4Q16, premium products gained more traction and RHB thinks this trend would continue in 1Q17 in view of the Lunar New Year festival and Valentine’s Day.
In line with RHB forex team’s expectation, management foresees a more stable IDR moving into 2017. This should also help to maintain a stable margin.
Meanwhile, management is optimistic about the JV with Orion Corporation in the medium term. This would not be a large contributor in 2017, however, as they seek to obtain a foothold in a competitive market. In the medium term, management foresees further collaboration with Orion to leverage on the latter’s strong positions in Vietnam and China.
“We see long-term potential with Delfi’s strong market share in the two emerging Asean countries,” adds RHB.
Shares of Delfi are down 3 cents at $2.32.
