Delfi Limited, previously known as Petra Foods, reported a decent set of results for 1Q16. Revenue was down 2.5% YoY to US$103.6m, meeting 25% of our full year estimate, while in constant currency terms, revenue had gained 6.5%. Notably, PATMI (excluding exceptional items in 1Q15) rose 7.8% to S$8.4m, which came in above expectations as it formed 31.5% of our full year forecast.

This improvement was driven by a 1.6ppt gain in gross profit margin, due to a combination of higher Own Brands sales, increased ASP from 3Q15, and on-going cost containment initiatives. Separately, the group has announced a JV agreement with South Korea’s Orion Corporation, to develop, market and sell a range of joint branded confectionery products in Indonesia.

All considered, despite the earnings improvement, current valuations do not seem sufficiently attractive. Pending more information at the analyst briefing later, we put our fair value of S$1.92 under review, and keep our SELL rating for now.

Source: OCBC Research - 12 May 2016