Delfi Limited - OCBC Investment 2016-05-13: Valuations Not Sufficiently Attractive

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DELFI LIMITED P34.SI 

Delfi Limited - VALUATIONS NOT SUFFICIENTLY ATTRACTIVE

• Currency depreciation effect abating
• Positive underlying sales growth
• But valuations not attractive enough

Decent set of 1Q16 results

• Delfi Limited, previously known as Petra Foods, reported a decent set of results for 1Q16. 
• Revenue was down 2.5% YoY to US$103.6m, meeting 25% of our full year estimate, while in constant currency terms, revenue had gained 6.5%. 
• Notably, PATMI (excluding exceptional items in 1Q15) rose 7.8% to US$8.4m, which came in above expectations as it formed 31.5% of our full year forecast. This improvement was driven by a 1.6ppt gain in gross profit margin, due to a combination of higher Own Brands sales, selective ASP increase implemented in 3Q15, and on-going cost containment initiatives.

Indonesia seeing positive underlying sales again

• After a lacklustre FY15, sales in Indonesia are back to positive growth at 3.2%, and in constant currency terms, underlying sales grew 11.7%. This was driven by stocking up from trade customers as well as seasonal sales in the run-up to the Muslim Lebaran festivities. 
• We believe growth should be able to sustain here, in view of currency depreciation effects abating as well.

Signed JV with South Korea’s Orion Corp

• Separately, the group has announced a JV agreement with South Korea’s Orion Corporation, to develop, market and sell a range of joint branded confectionery products (such as Orion’s choco pie) in Indonesia. Both entities hold an equal stake in the JV with a total initial capital commitment of US$3.0m.

FV estimate raised to S$2.15 but maintain sell

• We have increased our FY16/17F PATMI by 20%/26%. 
• We also adjust our USDSGD assumptions for Dec-16 to 1.37, based on our economists’ forecast. As such, our fair value estimate changes from S$1.92 to S$2.15, based on 30x FY16F P/E. 
• All considered, despite the expected earnings improvement, current valuations do not seem sufficiently attractive, thus we are keeping our SELL rating on the stock. 
• The share price could be supported to an extent by the favourable dividend yield of ~5.4% from the 9.82 US-cents offered to shareholders following a proposed capital reduction. 
• The capital reduction is now subject to approval of the High Court of Singapore.

Jodie Foo OCBC Securities | http://www.ocbcresearch.com/ 2016-05-13

OCBC Securities SGX Stock Analyst Report SELL Maintain SELL 2.15 Up 1.92