Picking up where it left off
? 1Q22 revenue of S$133.0m is comparable to quarterly high of S$136.6m in
1Q20, suggesting business momentum has returned to pre-Covid levels.
? We think Delfi could bring forward its expansion plans to FY22F if sales
momentum is sustained for the next 1-2 quarters.
? Delfi generated free cash flow of US$24.9m in 1Q22, bringing net cash position
to US$99.9m that is supportive of c.5% dividend yields. Reiterate Add.
A seasonally strong quarter
1Q22 revenue of US$133.0m (+11.4% yoy; +23.6% qoq) came in at 30.6%/30.5% of
our/consensus’ FY22F revenue forecasts, indicating a return to pre-Covid levels of sales
(1Q20: US$136.6m). The strong sales momentum can be partially attributed to higher
seasonality due to the gift-giving season for Valentine’s day during the quarter as well as
preemptive sales ahead of the earlier-than-usual Lebaran this year. Regional markets
recorded an all-time quarterly high revenue of US$40.2m since 1Q20 that likely benefitted
from the rollout of Van Houten as a regional brand over 2H21. EBITDA grew 12.8% yoy to
US$20.5m, forming 36.7% of our FY22F forecast and demonstrating better operating
leverage with margins improving 0.3% pt in 1Q22. Nevertheless, EBITDA margin narrowed
by 8.0% pts qoq due to higher opex as a result of seasonal trade promotions.
Cautiously optimistic while navigating out of the pandemic
In its business update, Delfi cited ongoing uncertainties and challenges arising from
political uncertainties, currency volatility and supply chain bottlenecks that have led to
persistent raw material inflation. Although GP margins were stable yoy at 29.4% from
29.2% in 1Q21, we note that there was a 3.3% pts decline qoq, which could suggest a
changing sales mix between its value/premium products and creeping raw material prices.
Average inventory days of 60 seems low even after considering seasonality factors (Fig 2),
which might suggest higher inventory replenishment costs moving forward. A Straits Times
article dated 16 May 2022 also suggested that rising inflation has affected purchasing
power of Indonesians which could dampen demand recovery despite more resilience within
the premium segment. Our FY22F earnings forecast reflects margin normalisation on
higher opex as we think Delfi could step up advertising and promotional spending.
Reiterate Add; strong financial position and attractive valuation
Our TP of S$1.09 is based on 18x of FY23F P/E, which is 0.5 s.d. below its 5-year historical
mean and similar to competitor Mayora (Hold, TP: Rp1,800). We find the valuation
attractive at 12x FY22F P/E, 1 s.d. below its 5-year historical mean. Delfi’s net cash position
of US$99.9m also remains supportive of 60% payout ratio, which would translate into a
respectable c.5% yield moving forward. Re-rating catalyst: successful sales campaign
across regional markets supporting own brands’ growth. Downside risks: margin pressures
from lagged cost pass-through, rising inflation dampening demand growth across operating
countries and a weakening Indonesia rupiah against the US dollar.