Simons Trading Research

Author: simonsg   |   Latest post: Wed, 14 Oct 2020, 11:16 AM


Delfi - Premium Chocs at Great Value; Strong BUY

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  • Reiterate BUY on our consumer sector Top Pick. Our DCF-derived Target Price of SGD1.68 implies 24% upside with 2.5% dividend yield.
  • DELFI LIMITED (SGX:P34) delivered a strong core PATMI of SGD9.4m for 1Q19, up 22% y-o-y. This met 34% of our full-year estimate, in line with our expectation.

Earnings Drivers

  • DELFI LIMITED (SGX:P34) continued to see robust revenue growth of 19.5% y-o-y on the back of rising demand in Indonesia and regional markets. This was largely driven by successful marketing campaigns during Valentines’ day, launches of new products and shipment of products to trade agents in anticipation of the Lebaran festivities in early June.

Expect Gross Margin to Remain at 35% This Year

  • Delfi's initiatives to cull less-profitable stock keeping units (SKUs) and focus on the premium range have led to improved gross margins. In 1Q19, agency brand products have also raised prices. This, together with higher sales of premium products, brought its gross margin to 35.8% (+1.3ppt y-o-y), one of the highest in the past seven years.
  • Given that the IDR has been fairly stable YTD, we believe Delfi’s gross margin should be able to stay at around 35% this year.

Operating Leverage to Kick in This Year

  • We do not expect any significant jump in administrative costs, since the SAP system was fully implemented last year.
  • Management also guided that 1Q19 administrative expenses should be the normalised rate.

Premium Chocolates at Value Price

  • Our DCF-derived Target Price of SGD1.68 implies 28x FY19F P/E. We think Delfi’s current valuation of 23x FY19F P/E is not expensive, given its growth outlook. It is also trading at a serious discount to Mayora Indah (BUY, Target Price IDR3,300), which is trading at 29x. See Delfi's share price history.
  • RHB is the only broker covering this stock. Delfi is also one of the RHB's Top Singapore Small Cap Companies - 20 Jewels 2019 Edition.

Source: RHB Invest Research - 16 May 2019

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