SINGAPORE (Aug 10): OCBC and RHB are maintaining their “hold” call on Delfi Limited following the group’s decrease in revenue and higher distribution costs in 2Q17.
Despite a 14.4% increase in 2Q17 earnings to US$9.3 million ($12.7 million) compared to US$8.1 million last year, which was supported by a one-off pre-tax divestment gain of US$4.6 million, the group’s revenue was down 6% to US$100.2 million.
See: Delfi 1H earnings fall 10% to US$14.9 mil on lower revenue
In a Thursday report, OCBC analyst Jodie Foo says, “Delfi has been continuously investing in various aspects of the business for the future, including brand building, capacity, distribution capabilities and supply chain integration.”
The group has been making efforts to allocate teams to focus on each of the various trade channels.
“Given the above on-going investments, we expect operating costs to remain high,” adds Foo.
In a separate report, RHB analyst Juliana Cai says that Delfi could see some cost savings as modern trade retailers have begun setting up their respective distribution centres to eliminate the middleman.
However, Cai believes that this may be offset by the need to hire more distributors to reach out to the independent players. Overall, the analyst notes that the group is expecting higher distribution costs in an absolute amount this year.
The group’s retail sales in Indonesia – Delfi Cha Cha and SilverQueen Classic – are still achieving growth.
Hence, Cai believes that the drop in 1H17 revenue could be due to product rationalisation, but the market may have already price in any near-term growth given that the stock is trading at 32x FY18F P/E.
Shares in Delfi are trading 2 cents lower at $2.10 as of 12.06pm.
