CGS International (CGSI) analyst Tay Wee Kuang has maintained “add” on Delfi with a lower target price of 93 cents from $1.10 previously following the chocolate manufacturer’s 1HFY2024 ended June results release.
For its 1HFY2024, Delfi’s patmi declined 22.3% y-o-y to US$19.6 million ($25.7 million), below expectations at 42.1% of CGSI’s full year estimates. Revenue declined 7.8% y-o-y due to weaker operating currencies, reduced trade promotion and termination of an agency brand in Indonesia.
Tay points out that Delfi saw a negative impact from translation to its reporting currency in US dollar of its key operating currencies in which it conducts sales — such as Indonesian rupiah, Philippines pesos and Malaysian ringgit.
“On a constant currency basis, Delfi’s revenue declined a lower 3.3% yoy. There was also a reduction in trade promotions, which we believe was a measure undertaken to defend its gross profit margin amidst escalated cocoa prices that can make certain promotional activities, such as bundle promotions, not viable.
“Delfi also terminated cooperation with an agency brand in Indonesia in 1HFy2024, pushing down revenue from its agency brands in Indonesia 7.1% y-o-y to US$49 million. During its analyst briefing held on August 14, management said the earlier Lebaran in FY2024 meant consumers may have consolidated purchases given the proximity to New Year’s and Valentine’s Day, resulting in lower overall sales observed,” Tay explains.
He highlights that Delfi has always utilised financial instruments such as futures to ensure visibility of its products’ cost structure, especially for ingredients such as cocoa. While Delfi did not disclose details of the pricing or how far forward it is currently covered till, the company said that it is still able to control costs in the near term. The company also shared that it undertook a price increase in May.
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CGSI has reduced its FY2024, FY2025 and FY2026 estimates by 26.2%, 21.2% and 22.7% respectively on the back of the revenue decline which is likely to persist. This led to the lower target price, based on 11x FY2026 P/E, 0.5 standard deviation of its 5-year historical average.
“We reiterate ‘add’ as we see Delfi’s healthy cash flow as a strength amidst consumption weakness in the near term, particularly in Indonesia. Delfi generated US$37.6 million in operating cash flow and remained in a net cash position of US$22.7 million in 1HFY2024,” he says.
Delfi also declared 2.06 US cents per share in dividends for 1HFY2024, unchanged y-o-y despite the patmi decline, representing an annualised yield of about 6.5%.
As at 11.33am, shares in Delfi are trading at an unchanged 81.5 cents.
