1H22 surpassing pre-COVID performance
- 1H22 net profit surged 58% y-o-y, surpassing pre-COVID levels in 2019 – above expectations
- Gross margins improved marginally despite cost pressures
- Interim dividend of 2.18 Scts declared, highest since 2014
- At 12x PE and 25% of market cap in cash, counter looks like a steal; maintain BUY with TP of S$1.10
What’s new?
Strong surge in net profit (+58%) for 1H22, surpassing pre-COVID performance in 2019 – above expectations. Delfi reported a strong set of 1H22 results, surpassing its pre-COVID performance in 2019. Net profit surged by 57.6% y-o-y to US$19.4m on the back of a 17% revenue growth to US$246.3m. The growth in revenue was driven by both its Indonesia and Regional markets, on the back of easing COVID-19 restrictions and improving consumer sentiment.
Gross margin improved by 40bps to 29.4%. Despite worries of rising raw material costs, the Group’s gross margin improved by 40bps to 29.4%, driven by sales of its premium products along with “price actions” taken, which we believe meant price increases and product right-sizing. We also noted that inventories written off fell by US$1.8m from the same period last year, which we estimate to help improve margins by an estimated 70bps.
Indonesia achieved strong performance. The Group’s Indonesia operations performed well, achieving revenue of US$167.2m (+16.1% y-o-y), accounting for 68% of total revenue, similar to 1H21. Growth was seen in its Own Brands across its product categories, especially in its premium brand such as SilverQueen and Cha Cha. Its agency business grew by a smaller 7.2%, helped by its snacking and consumer categories. Indonesia EBITDA grew by 30.4% y-o-y to US$32.2m, with margins improving to 19.2% in 1H22, from 17.1% a year ago.
Regional markets performance helped by Malaysia and Philippines. Albeit smaller, its regional markets’ performance was also stellar, registering revenue growth of 18.9% to US$79.1m, while EBITDA was at US$2.4m (+31.5%). This was driven by its operations in Malaysia, with strong performance in its consumer and healthcare categories. Over in the Philippines, operations benefitted from the easing of restrictions as well as the Group’s earlier investments in the market.
Balance sheet remains healthy with cash of US$94.6m. Along with its positive operating performance as well as its control of costs, cashflow and capital spending, the Group’s cash increased further to US$94.6m, up from US$86.2m as of 31 Dec 2021. This implies that the Group’s net cash as of 30 Jun 2022 accounts for about 25% of its current market capitalisation. We believe there lies opportunity for the Board/ management to deploy the cash and/or to return to shareholders to enhance value for the counter.
Interim dividend of 1.58 UScts (or 2.18 Scts) declared. An interim dividend of 2.18 Scts was declared, making it the highest interim dividend since the Group’s divestment of its cocoa business in 2014. The dividend equates to a payout ratio of 50%.
Our thoughts
Maintain BUY, TP:S$1.10. 1H22 strong results highlight the Group’s recovery along with the easing COVID restrictions. While there remains inflationary pressures and uncertainties, we believe the Group should be able to navigate these given its brand and distribution strength, along with its strong balance sheet. The counter is trading at 12x FY22F PE based on our current earnings estimates, which seems like a steal for a branded consumer company.
Beyond operating performance for share price re-rating. The strong operating performance can be a catalyst for its share price to re-rate. We believe the further re-rating could arise if and when the Board/ management decides to leverage on its strong balance sheet to enhance further value for shareholders either through inorganic growth opportunities, higher dividends payout/capital reduction, and/or share buyback programme.
