SINGAPORE (Dec 19): DBS Group Research is upgrading chocolate confectionery company Delfi to “buy”, from “hold” previously, on hopes of a better 2018.
“Delfi’s share price is at 6-year low and has slumped by 36% year-to-date on the back of its disappointing performance,” says lead analyst Andy Sim in a Monday report. “Looking ahead, we believe its share price could have priced in the current subdued situation and should improve as we move into FY18F.”
According to Sim, Delfi’s weak operating performance has been due to softer sentiment in Indonesia and product-rationalisation initiatives.
Looking ahead, Sim projects a 20% earnings each year in FY18 and FY19, on the back of the low-base effect, coupled with expected improvement in sentiment next year.
In addition, its production rationalisation efforts are nearing an end, and lower raw material costs could boost margins.
“While the upcoming 4Q17 results, expected to be released in Feb 2018, may not register a significant turnaround, we believe it should show a bottoming-out trend at worst,” says Sim.
However, DBS is lowering its forecasts.
“We revise our forecasts down by 30-32% to align with the YTD performance and now expect FY17F EPS to register a contraction of -17% on the back of lower sales, coupled with higher operating expenses,” Sim says.
As such, Sim has a lower target price of $1.80 on Delfi, down from $2.26 previously.
“Our positive thesis is on expectations that we are past the worst for Delfi,” says Sim.
As at 3.21pm, shares of Delfi are trading 5 cents lower at $1.38, implying an estimated price-to-earnings ratio of 23.9 times and a dividend yield of 2.3% in FY18.
