SINGAPORE (July 15): RHB analyst Juliana Cai has downgraded chocolate confectionery company Delfi to “neutral” from “buy” with an unchanged target price of 74 cents.
The downgrade comes as its core markets Indonesia and the Philippines face a resurgence of Covid-19 cases.
Both countries, which contribute around 70% and 15% towards Delfi’s total sales respectively, saw new cases spike to around 2,000 a day in July after the relaxation of restriction measures.
“Surging new cases of COVID-19 in Indonesia and the Philippines continue to weigh down on Delfi’s outlook. We note that parts of Manila would shut down again this week while Jakarta may also tighten restrictions if the numbers continue to rise. Whilst Delfi’s higher sales mix in the premium segment could help mitigate the decline in the value segment, we see risk of slower consumption recovery if COVID-19 pandemic continues,” says Cai in a Wednesday report.
Delfi will face some impact on its distribution channels should another lockdown happens, says Cai, who cites the example of significantly lower sales from general trade during the implementation of social distancing measures in Indonesia.
The record high unemployment rate in Indonesia and the Philippines from the ongoing outbreak has hampered demand in consumer sentiment as well.
“The resurgence of COVID-19 cases and the possibility of another lockdown are likely to weigh on both financial and health concerns. We believe consumption recovery for snacks and confectionery products would be slow if this situation persists,” Cai adds.
Delfi is currently trading at about 20x FY20F P/E, which is a “fair valuation” to the brokerage. Its closest peer, Mayora Indah, now trades at 23x FY20F P/E.
“On the currency, our in-house economist expects the USD/IDR to trade at 15,500 for FY20F. This is low compared to the current rate and could pose some upside to our earnings if not materialised,” she says.
As at 4.48pm, shares in Delfi are trading flat at 74 cents or 1.4 times FY20 book with a dividend yield of 2.5%.
