Ample reason to share the joy
- 1H22 core net profit of US$19.4m (+61.5% yoy) is a record-high and a strong beat to street estimates post-disposal of its cocoa ingredients unit in FY15.
- Interim dividend of 2.18 Scts/share implies an attractive annualised yield of c.5.5% at 50% payout ratio, in line with historical payout levels.
- We upgrade our earnings on the back of better revenue growth expectations while margins normalise. Reiterate Add with a higher TP of S$1.28.
Earnings surprise on favourable operating leverage
1H22 revenue of US$246.3m was ahead of expectations at 56.6%/56.5% of
our/consensus’ FY22F estimates and surpassed pre-Covid levels of US$226.9m in 1H19.
The resilient sales momentum was spurred by the economic recovery post-pandemic with
revenue growth recorded across all markets and across own/agency brands (Fig. 2).
Revenue growth of 17.0% yoy outpaced opex growth of 5.7% yoy, allowing Delfi to enjoy
operating leverage, as it recorded core net profit of US$19.4m (+38.6% hoh, +61.5% yoy)
in 1H22, beating expectations at 74.3%/72.2% of our/consensus’ FY22F estimates.
Growing appetites in key operating markets
We share management’s optimism on the growth prospects of its key operating markets in
Indonesia and the Philippines, where healthy GDP growth expectations could continue to
support higher consumption levels of chocolate confectionery and adjacent food
categories. Furthermore, Delfi’s revenue growth of 16.1% in Indonesia, where it is the
market leader with a c.40% share of retail value in the confectionery space, had outpaced
the market’s growth, according to management. This reinforces our confidence that Delfi
is in a prime position to capture potential growth opportunities, especially with its
established sales channels across these markets.
Successful business execution to control costs
Despite rising costs of raw material, Delfi saw its GP margins remain resilient at 29.4%
(+0.4% pt yoy). The management said it will continue to keep a close eye on COGS, but
opex is likely to trend upwards as Delfi reinvests into the business by resuming sales and
marketing expenses that were deferred during the pandemic.
Reiterate Add with a higher TP of S$1.28
We increase our FY22F/23F/24F EPS by 26.5%/24.4%/24.3% as we foresee lasting
operating leverage on sustained revenue momentum, which would support attractive
dividend yields of c.5%. We raise our TP to S$1.28, pegged at 17x of our FY23F P/E, its
historical average since FY18 post disposal of cocoa ingredients business and revamping
of its product portfolio. The stock is currently trading at an attractive valuation of 10.8x
forward P/E, more than 1 s.d. below its historical average, and a steep discount to peers’
average of 20x (Fig 4). Key rerating catalyst: swifter revenue growth momentum; downside
risks: escalating costs and slowdown in sales momentum.
