Delfi Ltd - DBS Research 2016-08-11: 1H16 performance tracking expectations

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DELFI LIMITED P34.SI

Delfi Ltd - 1H16 performance tracking expectations

• 2Q16 within expectations
• Recovery on track.
• Valuations may have priced in earnings turnaround.
• Maintain HOLD; TP adjusted to S$2.42 to account for cash paid out for capital reduction. 

Maintain HOLD; TP revised to S$2.56. 

• We maintain our HOLD recommendation, but revise our TP to S$2.42 with the payout cash on its capital reduction in June 16. 
• 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).

2Q16 net profit within expectations. 

• Net profit rose by 9.3% yo-y to US$8.1m, bringing 1H16 net profit to US$16.6m (+9.2% y-o-y) or 53% of our full-year estimate. 2Q16 revenue dipped by 7.5% y-o-y to US$106.4m due to the effects of weaker regional currencies (vs USD), cessation of its Singapore distribution business, and weaker Agency businesses.
• Excluding the effects of weaker exchange rates, revenue would have only dipped by 4.4%. An interim dividend of 1.75 Scts (1H15: 1.11 Scts), which translates into 50% payout ratio, was declared. 

Recovery underway, though in slow fashion and could be priced in. 

• Our key takeaway from the 1H16 results thus far is that we have seen the worst in 2015 (particularly in 2H15), and a recovery is underway. That said, we are not expecting a strong surge in top-line, given the improving but cautiously optimistic sentiment. 
• We are retaining our estimates, and while there is a strong net profit growth projected in FY16F, note that it is from a low base in 2015. 
• We expect sales in 3Q16 to slow sequentially from 2Q16, given the quarter comes after a festive season (Lebaran in Indonesia) before picking up in 4Q. 
• In our view, current valuations at 37x/27x FY16F/17F PE could imply that the current share price has factored in the earnings turnaround.

Valuation

• Our TP drops to S$2.42 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/ 2016-08-11

DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 2.42 Down 2.560