Delfi Limited - DBS Research 2016-05-13: 1Q recovery as expected

Delfi Limited - DBS Research 2016-05-13: 1Q recovery as expected DELFI LIMITED P34.SI 

Delfi Limited - 1Q recovery as expected

  • 1Q16 net profit slightly ahead on better gross margins and lower admin expenses
  • Top line indicates no signs of worsening from 4Q though sentiment is still cautious
  • Entered into a JV with Orion
  • Maintain HOLD, new TP at S$2.56 based on FY17F

Maintain HOLD; TP raised to S$2.56. 

  • We maintain our HOLD recommendation, but raised our TP to S$2.56 as we roll our valuations over to FY17F, from average of FY16F/17F. 
  • While we expect the Group to post earnings growth of 103%/34% to US$31m/US$41m in FY16F/17F, this is due to a low base in FY15 (-70% y-o-y from FY14). 
  • Current valuations look high at 37x/27x FY16F/17F PE, and could imply that the current share price have factored in the earnings turnaround.

1Q16 net profit slightly ahead, top line not indicating strong return of sentiment. 

  • Delfi's 1Q16 net profit was slightly ahead at 30% of our original full-year estimates, largely due to higher gross margins and lower admin expenses. 
  • Revenue however dipped by 2.5% y-o-y due to effects of weaker regional currencies and cessation of its Singapore distribution business. 
  • In local currency terms, revenue grew by 11.7%, of which about 7% is estimated to be from price increase/ product right-sizing initiatives put in place last year. 
  • We estimate a relatively subdued volume growth of < 5%, indicating that sentiment, while not worsening, have yet to turn up significantly.

Raised FY16F by 11%. 

  • We raised our FY16F estimates by 11% as we adjust up our gross margin assumption to 31% (from 30.5%) and lowered admin costs to 4.1% of sales. 
  • The Group also announced the formation of a 50:50 JV with Orion Corporation to develop, market and sell a range of joint branded confectionery products. The partnership will help Delfi to expand its product portfolio, while Orion will leverage on Delfi’s distribution strength in Indonesia.


  • Our TP is adjusted to S$2.56 as we roll our valuations over to FY17F earnings, coupled with the expected capital reduction amounting to 13.7 Scts/share.

Key Risks to Our View:

  • Earlier-than-expected earnings recovery. An earlier-than- expected earnings recovery will give rise to upside earnings risk.

Andy Sim CFA DBS Vickers | http://www.dbsvickers.com/ 2016-05-13
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 2.56 Up 2.21