SINGAPORE (June 5): KGI Securities is initiating an "outperform" recommendation on Delfi Limited with a target price of 93 cents.
In a Friday report, analyst Amirah Yusoff says, “We believe that Covid-19 disruptions are merely speedbumps on the road to strong sustained growth, as Delfi continues to evolve with the Indonesian consumer, and their changing tastes and preferences.”
Delfi is the manufacturer and distributor for many of Indonesia’s favourite chocolate confectionery products, holding a strong and unwavering market share of close to 50%. This has been and will continue to be the trend as Indonesian shoppers are not only fiercely loyal to local brands for many of their daily needs, but are also more price sensitive, especially for the value product ranges that cater to the Traditional Trade (mom-and-pop stores) consumers.
In catering to the modern trade consumers in supermarkets and convenience stores, Delfi is working on the rejuvenation of its newly acquired Van Houten brand, as they have previously done before with the Philippine Goya and Knick Knack brands.
“We believe that further rejuvenation of the iconic European brand through Delfi’s planned initiation of a multi-phased brand repositioning program, will allow for a broadened business and customer base, which will in turn be a key driver for Own Brands sales in the next few years,” says Amirah.
This will also support the company’s growth strategies of capitalising on the upcoming premiumisation trend among Indonesian youths. Delfi has also restructured its distribution model to help reduce costs while improving the quality and timeliness of its deliveries to key customers.
However, the Covid-19 pandemic has resulted in global supply chain and demand disruptions. The International Monetary Fund (IMF) has also cut Indonesia’s growth forecasts for 2020 to 0.5% and has projected unemployment rates to increase to 7.5% in 2020 from 5.3% in 2019. IMF has also projected one of the fastest recoveries for Indonesia in the last 25 years, a GDP growth of 8.2% in 2021.
“We also note that emerging markets such as Indonesia have consistently recovered more quickly than developed markets – Indonesia too particularly as it is much more domestic-demand-oriented,” says Amirah.
The analyst also believes that this fast recovery trend is consistent and Indonesia has a tendency to emerge stronger than before. In addition, consumer sentiment has remained relatively buoyant especially in the grocery category, with many expressing the intention and expectation to spend more on snacks and groceries as they continue to stay home.
As at 3.00pm, shares in Delfi are trading at 78 cents or 1.7 times FY20 book with a dividend yield of 1.6%.
