SINGAPORE (May 9): RHB Research is keeping its “neutral” rating on Delfi with an unchanged target price of $1.54, even as it anticipates a recovery for the chocolate confectionery company.
“Delfi’s efforts to refocus on core brands and invest in its route-to-market capabilities are likely to bear fruit this year,” says analyst Juliana Cai in a Wednesday report.
However, she adds that Delfi’s stock is still not sweet enough to bite into.
“Although we expect consumer spending in Indonesia to pick up, and Delfi’s earnings to grow by strong double digits over the next couple of years, we think that its valuation is still not compelling, at this moment,” Cai says. “The stock is trading at 30x FY18F P/E, and we believe the earnings recovery has been priced in.”
Delfi saw its earnings grow 33.1% to US$7.6 million ($10.1 million) for the 1Q ended March, as revenue rose 15.1% to US$107.3 million on the back of strong traction in its core brands in Indonesia.
In addition, the higher revenue was boosted by sales deferred from Dec 2017 as well as the run-up to the Muslim Lebaran festivities.
See: Delfi posts 33.1% rise in 1Q earnings to $10.1 mil on higher revenue
“Although we are still positive on Indonesia’s full-year GDP growth, we do not expect its rate of revenue growth to be maintained in the next three quarters, due to the depreciation of the [Indonesian rupiah] and the absence of deferred sales,” Cai says.
Meanwhile, she expects Delfi’s gross margin to remain stagnant over the remainder of FY18.
However, Cai points out that Delfi could leverage on the Van Houten brand to enter new markets in the future.
The group in April acquired the exclusive and perpetual license to the Van Houten brand chocolate and cocoa products in key Asia markets for US$13 million.
“Van Houten will be an integral part of our portfolio and will see a significant level of management focus and investment into growing the brand across the region,” Delfi CEO John Chuang said during the announcement of the deal last month.
See: Delfi acquires rights to Van Houten brand in key Asia markets
According to Cai, Delfi has a war chest of some US$66 million, and is likely to still remain in a net cash position post-acquisition.
“However, we also do not expect its dividend payout ratio to differ significantly from last year, since it may continue to look out for future acquisitions or partnerships,” she adds.
Shares of Delfi last closed at $1.48 on Tuesday, implying an estimated price-to-earnings ratio of 29.9 times and a dividend yield of 2.0% for FY18.
