• Currency depreciation effect abating
• Positive underlying sales growth
• But valuations not attractive enough

Decent set of 1Q16 results

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 US$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, selective ASP increase implemented in 3Q15, and on-going cost containment initiatives.

Indonesia seeing positive underlying sales again

After a lacklustre FY15, sales in Indonesia are back to positive growth at 3.2%, and in constant currency terms, underlying sales grew 11.7%. This was driven by stocking up from trade customers as well as seasonal sales in the runup to the Muslim Lebaran festivities. We believe growth should be able to sustain here, in view of currency depreciation effects abating as well.

Signed JV with South Korea’s Orion Corp

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 (such as Orion’s choco pie) in Indonesia. Both entities hold an equal stake in the JV with a total initial capital commitment of US$3.0m.

FV estimate raised to S$2.15 but maintain sell

We have increased our FY16/17F PATMI by 20%/26%. We also adjust our USDSGD assumptions for Dec-16 to 1.37, based on our economists’ forecast. As such, our fair value estimate changes from S$1.92 to S$2.15, based on 30x FY16F P/E.

All considered, despite the expected earnings improvement, current valuations do not seem sufficiently attractive, thus we are keeping our SELL rating on the stock.

The share price could be supported to an extent by the favourable dividend yield of ~5.4% from the 9.82 US-cents offered to shareholders following a proposed capital reduction. The capital reduction is now subject to approval of the High Court of Singapore.

Source: OCBC Research - 13 May 2016