SINGAPORE (Nov 15): RHB Research is keeping its “buy” call on chocolate confectionery company Delfi but lowering its target price to $1.65, from $1.86 previously, due to slower-than-expected consumption recovery.
“3Q17 results have shown the first signs of recovery in terms of revenue growth in local currencies,” says analyst Juliana Cai.
In particular, its core brands demonstrated double-digit growth, after two quarters of negative year-on-year growth brought on by weaker consumption in the region and the group’s product rationalisation exercise, which started in end-2015.
“Moving forward, we believe the improved Indonesian consumer sentiment should help to offset revenue-dampening effects from the product rationalisation exercise,” says Cai.
She adds that the ongoing product rationalisation exercise initiatives are likely to improve Delfi’s competitive standing in the long run.
Meanwhile, the analyst believes that group’s gross margin should continue to stay within the management’s comfortable range as prices of raw materials are still lower than a year ago, despite creeping upwards in recent months.
At the same time, selling and distribution expenses should stabilise as Delfi reports that it has concluded its negotiations with key retailers to help manage higher distribution costs brought about by the changing retail landscape in Indonesia.
“The strong double-digit growth posted by its core brands and accelerated growth in Indonesia are positive signs, if sustained. Moving forward, we believe earnings would show a stronger recovery as topline grows and operating leverage improves,” Cai says.
As at 4.39pm, shares of Delfi are trading 2 cents lower at $1.43, implying an estimated price-to-earnings ratio of 31.2 times and a dividend yield of 1.6% in FY17.
