Delfi Limited - OCBC Investment 2016-08-11: 1H16 Results Met Expectations

Delfi Limited - OCBC Investment 2016-08-11: 1H16 Results Met Expectations DELFI LIMITED P34.SI

Delfi Limited - 1H16 Results Met Expectations

  • Small core PATMI improvement
  • Own Brands to help growth
  • Limited upside at current levels 

Decent set of results 

  • Delfi Limited reported a set of results that met our expectations. 2Q16 revenue was down 7.5% YoY to US$106.3m, while in constant currency terms, underlying revenue was down 4.4%. PATMI (excluding exceptional items in 2Q15) was up 3% to US$8.1m. 
  • For 1H16, revenue was down 5.1% to US$209.9m while PATMI (excluding exceptional items in 2Q15) was up 5.4% to US$16.6m, forming about half of our full year estimates. 
  • 1H16 gross profit margin of 32.6% improved by 2.8ppt due to higher sales of premium Own Brands products, price adjustments as well as ongoing cost containment initiatives.

Driven by Own Brands sales 

  • For 1H16, Own Brands sales continued to be a major contributor, constituting more than 60% of the Group’s revenue. 
  • Overall Own Brands sales in local currency terms rose 3.4% and 7.5% in 2Q and 1H16 respectively, driven by higher sales of premium products, as trade customers replenished their supply chain. 
  • For Agency Brands, sales in local currency terms were lower by 15.5% and 9.6% in 2Q and 1H16, due to cessation of its distribution business in Singapore from 31 Aug-15 and lower Agency Brands sales in Indonesia. The latter was due to changes in regulatory standards for imported products from non-ASEAN countries which had disrupted sales, but management does not expect any significant issue here.

View remains unchanged 

  • We acknowledge the improvement in gross profit margin and outlook, but selling and distribution costs remain relatively high as a percentage of sales (16.7% for 1H16, vs. ~13% back in FY13-14) as the group continues to invest in channel development and growing core brands sales. 
  • Meanwhile, efforts are also made to rationalize its products portfolio, such as discontinuing some slow-moving SKUs at end-15 and 1Q16. 
  • Given the in-line set of results, we keep our estimates largely unchanged. Our USDSGD assumption is also kept at 1.37, based on Jun-17 forecasts by OCBC Treasury Research. Rolling forward valuations to 30x FY16/17F P/E, our fair value is raised to S$2.34 (previous: S$2.15) while our SELL rating is unchanged on limited upside. 
  • Separately, an interim dividend of 1.83 S-cents/share has been declared, representing a 50% payout.

Jodie Foo OCBC Investment | http://www.ocbcresearch.com/ 2016-08-11
OCBC Investment SGX Stock Analyst Report SELL Maintain SELL 2.34 Up 2.150