• Reiterate BUY, new Target Price of SGD1.68 from SGD1.59, 16% upside and 2% FY19F yield.
• Delfi delivered a strong 4Q18 core PATMI of USD5.4m (+60% y-o-y), which took FY18 core PATMI to USD23m (+33% y-o-y), beating our estimate by 4%.
• We increase FY19-21F earnings by 5-6% which, in turn, lifts our DCF-derived Target Price.
• Delfi remains one of our Top Picks for Singapore consumer counters this year.

FY18 Results Are Above Expectations

• During the year, DELFI LIMITED (SGX:P34) booked 12% y-o-y revenue growth. This was largely driven by a strong sales momentum in premium products – especially in Indonesia, where sales of its own-brand products jumped 18% y-o-y.
• The regional markets recorded 10% growth in revenue, led by both own brands and agency brands. The increased contribution from premium products improved its overall gross margin by 0.6ppt.

Still Positive on FY19F

• Moving into 2019, Delfi should continue to enjoy higher demand for its confectionery products, driven by solid economic growth. It will continue to right-size or reprice lower-end products to ensure they generate sufficient margins, as well.
• We believe this would bring about continued improvements in gross margins.
• Delfi also fully implemented the SAP system last year. As such, we believe administrative costs should remain stable for FY19.

A Sweet and Steady Ride

• Delfi’s share price has outperformed the STI by 5.2% YTD. That said, we believe there is still room for further upside, based on its prospects for FY19. The stock is currently trading at 24x FY19F P/E, ie at a discount to its peer, Mayora Indah (MYOR IJ), which is expected to demonstrate similar earnings growth and is trading at 29x FY19F P/E.
• Our Target Price of SGD1.68 implies 28x FY19F P/E, which we believe is still reasonable.

Source: RHB Invest Research - 01 Mar 2019