• Reinstating coverage with a BUY recommendation and Target Price of S$1.49 offering 49% upside.
• Delfi's Share Price does not fully reflect a recovery in earnings growth momentum.
• Premiumisation strategy to capitalise on consumer trends in Indonesia; Van Houten to aid in regionalisation strategy.
• Excellent distribution model with a moat.

Delfi Company Background

Company History

• DELFI LIMITED (SGX:P34) (formally known as Petra Foods Limited), was established in 1984 by the group’s Chief Executive Officer, Mr. John Chuang, through a series of restructurings and acquisitions, which included PT Perusahaan Industri Ceres (established in 1950) and PT General Food Industries (established in 1969).
• The group was listed on the Main Board of the Singapore Exchange (SGX) on 5 November 2004 at an offering price of S$0.88.

Business operations and operating geography

• Delfi manufactures and distributes chocolate confectionary products ranging from chocolate bars to dragees in Indonesia and its regional markets. It is the market leader for chocolate confectionary products in Indonesia, and Euromonitor estimates its market share in 2018 to be 44%. While the group began its international expansion drive in 1988, Indonesia continues to be its main market, accounting for 71.6% of its revenue in FY18.
• Delfi classifies its business segments into Own Brands and Agency Brands (third-party brands).
• Delfi manufactures and distributes its Own Brands mainly in Indonesia and the Philippines. It also manufactures and/or distributes more than 40 third-party brands in Indonesia and its regional markets. The distribution channels it uses are the Modern Trade (wholesalers, minimarts, convenience stores) and Traditional Trade (mom-and-pop stores and smaller retailers) channels.
• Its own brands are better received in its home market, accounting for 82.9% of sales from Own Brands in FY18, while its third party brands are almost equally well-received in its home-market and regional market (50.3%/49.7% contribution to Agency Brands revenue in FY18 respectively).
• Examples of Delfi’s own brands include Van Houten, SilverQueen, Ceres, Delfi, Selamat and Goya, and some third party brands it distributes are Fisherman’s Friend, Toblerone, and Tabasco.

Source: DBS Research - 30 Oct 2019