Lim & Tan Securities has lowered its target price for Delfi to $1.04 from $1.30, but kept its “accumulate” call on the chocolate manufacturer as it has “attractive yields while awaiting recovery”.
This report follows the group’s 1HFY2024 results, in which CGS International previously also lowered its target price to 93 cents but maintained its “add” call.
Lim & Tan’s analyst Chan En Jie says that Delfi’s 1HFY2024 results came in below expectations, with revenue and net profit coming in at 46% and 42% of his full year forecast.
Revenue declined 7.8% y-o-y to US$260.8 million ($340.12 million), impacted by several headwinds including a weaker Indonesian rupiah against the US dollar, weaker consumer spending as well as termination of an agency brand in Indonesia.
The main contributor to weaker sales is due to a declining rupiah against US dollar, which also impacted raw material costs bought in US dollar, notes the analyst.
He says that excluding forex impact, total revenue saw a smaller y-o-y drop of 3.3%, but the exchange rate differences may have found support since July 2024 from the upcoming US rate cuts.
As cocoa prices have skyrocketed, almost tripling from US$3,500 per ton to US$9,000 per ton over the past year, rising cocoa prices will inevitably compress margins unless price adjustments are passed on to customers, says Chan.
Meanwhile, gross margins of 28.8% saw a slight drop as Delfi reduced trade promotions to defende margins from higher cocoa coasts, the analyst adds.
“Delfi’s SilverQueen brand name is culturally connected to Indonesians, and Delfi is confident the pricing power of its brands enable them to pass through price increases when necessary,” says Chan. “Management believes current cocoa prices of more than US$9,000 per ton are unsustainable which will likely encourage farmers to plant more beans and increase supply.”
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But despite lower earnings, Delfi maintained its interim dividends at 2.72 cents, he adds. “Backed by stable cash flows and a strong net cash position, we believe Delfi has the capacity to maintain full year dividends, an attractive 7.2% yield,” Chan continues.
Chan bases his valuations on 12.9 times FY2024 P/E, and cuts his previous FY2024-FY2025 revenue and earnings estimates by 11%/10% and 22%/21% respectively in view of higher cocoa prices and rupiah/US dollar weakness.
At its current share price of 80 cents, Delfi’s valuations of 9.9 times forward P/E and 1.4 times P/B are at a deep discount relative to its historical average and peers, the analyst adds.
Shares in Delfi closed 3 cents lower or 3.64% down at 79.5 cents.
