A sweet treat to end FY21
? FY21 core net profit was a strong beat, at 129%/129% of our/consensus’ estimates on improved cost profile as sales momentum recovered.
? Special DPS of 0.48 US cents proposed alongside final DPS of 1.08 US cents brings FY21 DPS to 2.83 US cents for an attractive c.5% yield.
? Reiterate Add; raise TP to S$1.09 as we increase EPS for FY22-23F by 12- 13% while pegging at a slightly lower P/E multiple of 18x (from 20x).
Strong showing in 2H21, topped with cost discipline
FY21 core net profit of US$25.9m was supported by general sales recovery across its operating markets (i.e. Indonesia, Philippines, Singapore and Malaysia), and continued cost discipline in 2H21. FY21 revenue came in at 97%/99% of our/consensus’ estimates as sales recovered qoq in 4Q21 due to the reopening of Indonesia and seasonality factors. 2H21/FY21 GP margins improved 3.3% pts/0.9% pts yoy, despite cost pressures from high raw material and transportation costs, exhibiting Delfi’s success in its cost control measures through hedging. Better sales momentum also translated to improved operating leverage, with lower selling and distribution expenses per revenue dollar.
Special dividend on the back of strong cash position
Delfi proposed a special per share (DPS) of 0.48 US cents per share alongside a final DPS of 1.08 US cents, bringing total FY21 DPS to 2.83 US cents. Delfi’s healthy and growing cash balance of US$86.2m, even after paying down US$39.3m in borrowings, as at endFY21 is supportive of core dividends of 2.35 US cents per annum and could potentially pave the way for more special dividends in the future, especially as the company deliberates timing of expansionary capex while operating with a low maintenance capex of
c.US$4m-6m per annum. Core dividends provide a respectable dividend yield of c.4%
Cautiously optimistic of business environment in FY22F
Despite rising Covid-19 cases within its operating markets, governments have remained steadfast in re-instating social mobility domestically. This will benefit Delfi, especially as consumption patterns return to pre-Covid-19 levels. Delfi will continue executing its business strategy to rejuvenate its portfolio, such as further launches of its ‘Better-for-You’ product lines to capture a wider consumer base, while deepening relationships with channel partners to ensure product availability across sales channels.
Reiterate Add with TP of S$1.09 on attractive valuations
We reiterate our Add call with a revised TP of S$1.09 as we roll forward our valuation for Delfi, and peg our TP to 18x FY23F P/E, 0.5 s.d. of its 5-year historical average. The slightly lower multiple is to account for Delfi’s wide trading band over the past 5 years. We expect strong earnings momentum supported by an improving operating environment. Re-rating catalysts include successful product launches that result in stronger sales momentum, while downside risks include margin compression from extenuating cost conditions.