UOB Kay Hian analysts John Cheong and Heidi Mo have kept their "buy" call and $1.71 target price on Delfi, given how the chocolate maker continues to enjoy robust demand across Indonesia and other markets.
Year to date, Delfi is among the strongest performing stocks within the FTSE ST All-Share Index, which consists of the 30 STI component stocks, plus another 72 mid and small cap counters. It has gained 65.38% year to date as of close of June 30. Sembcorp Industries U96 , which leads both this index and the STI, is up 67.15% following a strong 3.79% gain on June 30.
The company, having reported record-high revenue of US$160.8 million for its 1QFY2023, up 20.8% y-o-y, is seen to maintain its growth momentum for the full year.
The growth was driven by strong double-digit sales growth from its two key business lines, products sold under Delfi's own brands, and those it makes for others, which were up 17.6% and 26.7% yoy respectively.
Cheong and Mo expect growth in Indonesia, Delfi's key market, to continue strongly, given how the country's GDP is seen to increase by 5% this year.
The analysts note that price of cocoa - Delfi's key ingredient - has recently surged because of limited supply. Yet, they are confident that forward contracts entered by the company, plus its strong pricing power, should help alleviate such concerns.
See also: RHB initiates coverage on CSE Global with ‘buy’ call with TP of 58 cents.
Despite the higher costs, Delfi's gross margins increased 5ppt y-o-y in 2016 and remained stable above 28% since.
The analysts attribute this to Delfi's implementation of successful strategies, such as product resizing.
"Additionally, Delfi actively manages cost with forward hedges of up to 18 months, helping the group secure its raw material requirements while locking in purchase prices," they add.
See also: Suntec REIT biggest beneficiary from MAS’s ‘looser’ leverage, ICR rules: OCBC
Cheong and Mo note that Delfi has maintained a consistent dividend payout ratio of 50% for years and is expected to give a yield of 5% this year.
"Given its strong net cash position of US$73.1m, we expect payout ratio to be maintained at least 50% in 2023-25," the analysts state.
Delfi is now trading at 12x 2023F PE, a 40% discount to Indonesia-based peers’ 2023 estimated PE average of 21x.
Their target price of $1.71 is based on 17x estimated FY2023 earnings, which is its long-term mean.
As at 3.21pm, Delfi changed hands at $1.30, up 0.78% for the day, and up 66.67% year to date.
