3Q2023 Business Update: Building up brand for continued growth
- 3Q23 revenue +12.9% y-o-y on sustained strong sales in Indonesia and regional markets
- 3Q23 EBITDA -6.3% y-o-y due to increased brand building investments, in line with expectations
- 9M23 revenue and EBITDA forms c.74%/62% of our forecast, expect stronger 4Q23 supported by handouts ahead of Indonesian presidential election
- Improving free cash flow generation at US$22.9m as of 3Q23 YTD vs US$14m as of 3Q22 YTD; Maintain BUY; TP at S$1.63
3Q23 revenue up 12.9% while EBITDA declined 6.3% y-o-y. Delfi delivered a decent set of results with top-line growth driven by higher sales in both Indonesia and Regional Markets. EBITDA decline was within expectation as the company continues to invest in brand building.
Gross margins declined by 0.2% points y-o-y and flat q-o-q. Gross margin remained relatively stable as sales mix improvement and price hikes were able to offset higher input costs.
Strong free cash generation and healthy balance sheet. The company continues to be highly free cash flow generative with 9MYTD free cash flow of US$22.9m, 63% higher y-o-y. While net cash position has declined from US$58m in 3Q22 to US$44m in 3Q23, it remains at a healthy level, more than sufficient to support higher dividends and existing capex needs.
9M23 revenue at 74% of FY23F estimate on track to meet target while EBITDA at 62% of estimate. We expect 4Q23 to record q-o-q sales and EBITDA growth driven by seasonally stronger quarter and also possibly from handouts ahead of Indonesia presidential election. With the right optimisation of operating costs and brand investment, we believe the company could still achieve our FY23F earnings estimate.
Brand investment necessary for longer term growth prospect. As companies emerge from COVID-19, they are becoming increasingly aggressive in their brand investment. We believe the company is making the right choice to continue investing into its brands, which will drive sustainable longer-term growth.
Delfi continues to trade at an attractive valuation of 12x forward PE ratio and has a healthy balance sheet at US$44m net cash. Maintain BUY; TP: S$1.63.