• In a recent NDR with Delfi (SGX:P34), the management shared its concerns on short-term uncertainties as consumption remains affected by COVID-19.
• Beyond COVID-19, Delfi is positioning for growth through optimising its portfolio offerings and enhancing service levels.
• We think the Philippines could be a potential market of growth with the introduction of other brands within its portfolio from adjacent categories.

Recovery Underway, But at Uncertain Pace

• Sales of chocolate confectionery are down during the pandemic due to lower footfall at supermarkets and hypermarkets, as a result of mall closures amid COVID-19 restrictions. Although gradual reopening measures are in place, the situation across Delfi’s key operating markets, Indonesia and the Philippines, remains fluid. This is due to the resurgence of cases from the more transmissible Delta variant, coupled with low vaccination rates from the shortage of supplies.
• Nevertheless, we believe that Delfi will take no longer than two quarters for sales to recover once the situation stabilises.

Positioning for Growth Beyond the Pandemic

• In 2020, Delfi launched two new flavours under services levels that contributed to higher sales momentum observed pre-COVID-19.

Opportunities in Philippines

• The Philippines became Delfi’s second categories within its current portfolio to grow its market share in the Philippines over the longer term.

Attractive Valuations

• Delfi continues to trade at a discount to peers’ average P/E of 28.8x for CY21F and below 1 standard deviation of its 3-year historical mean of 20.4x. We expect valuations to re-rate given its recovery and growth prospects, pegging our target price at 3-year historical average P/E of 20x to FY22F earnings.

• Re-rating catalyst: swifter reopening of Indonesia following faster vaccination rollout.
• Downside risk: reinstatement of movement restriction measures.

Source: CGS-CIMB Research - 28 Sep 2021