Excerpts from CGS CIMB report

Delfi Ltd (SGX: P34)

• Delfi Ltd 1H22 core net profit of US$19.4m (+61.5% yoy) is a record-high and a strong beat to street estimates post-disposal of its cocoa ingredients unit in FY15.
• Interim dividend of 2.18 Scts/share implies an attractive annualised yield of c.5.5% at 50% payout ratio, in line with historical payout levels.

We upgrade our earnings on the back of better revenue growth expectations while margins normalise. Reiterate Add with a higher TP of S$1.28.

Delfi Ltd earnings surprise on favourable operating leverage

1H22 revenue of US$246.3m was ahead of expectations at 56.6%/56.5% of our/consensus’ FY22F estimates and surpassed pre-Covid levels of US$226.9m in 1H19.

The resilient sales momentum was spurred by the economic recovery post-pandemic with revenue growth recorded across all markets and across own/agency brands (Fig. 2).

Revenue growth of 17.0% yoy outpaced opex growth of 5.7% yoy, allowing Delfi to enjoy operating leverage, as it recorded core net profit of US$19.4m (+61.5% yoy) in 1H22, beating expectations at 74.3%/72.2% of our/consensus’ FY22F estimates.

Growing appetites in key operating markets

We share management’s optimism on the growth prospects of its key operating markets in Indonesia and the Philippines, where healthy GDP growth expectations could continue to support higher consumption levels of chocolate confectionery and adjacent food categories.

Furthermore, Delfi’s revenue growth of 16.1% in Indonesia, where it is the market leader with a c.40% share of retail value in the confectionery space, had outpaced the market’s growth, according to management.

This reinforces our confidence that Delfi is in a prime position to capture potential growth opportunities, especially with its established sales channels across these markets.

Successful business execution to control costs

Despite rising costs of raw material, Delfi saw its GP margins remain resilient at 29.4% (+0.4% pt yoy).

The management said it will continue to keep a close eye on COGS, but opex is likely to trend upwards as Delfi reinvests into the business by resuming sales and marketing expenses that were deferred during the pandemic.

Valuation/Recommendation

Reiterate Add with a higher TP of S$1.28. We increase our FY22F/23F/24F EPS by 26.5%/24.4%/24.3% as we foresee lasting operating leverage on sustained revenue momentum, which would support attractive dividend yields of c.5%.

We raise our TP to S$1.28, pegged at 17x of our FY23F P/E, its historical average since FY18 post disposal of cocoa ingredients business and revamping of its product portfolio.

The stock is currently trading at an attractive valuation of 10.8x forward P/E, more than 1 s.d. below its historical average, and a steep discount to peers’ average of 20x.

Delfi share price chartYou can find the full report here and the company website here.