Delfi Limited - OCBC Investment 2016-11-10: A Better Quarter

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DELFI LIMITED P34.SI

Delfi Limited - A Better Quarter

• 3Q16 results within expectations.
• Better profitability.
• Driven by several initiatives.

3Q16 results within expectations 

• Delfi Limited reported its 3Q16 results that came in within our expectations. 
• 3Q16 revenue was up 2.4% YoY to US$86.6m, but in constant currency terms, underlying revenue was marginally down by 0.7% due to a relatively stronger IDR YoY. Excluding an exceptional charge of US$19.4m in 3Q15 and a US$2.6m interest income received in 3Q16 relating to a past tax issue, PATMI this quarter improved to an estimated US$3.3m from a net loss of US$1.2m in 3Q15. 
• 9M16 revenue of US$296.5m and PATMI of US$22.5m met 71% and 70% of our full year estimates respectively.

Sales driven by Own Brands premium products 

• Own Brands sales contributed more than 60% of the group’s revenue.
• Own Brands sales was largely similar YoY for 3Q and up 1.6% for 9M16, driven by higher sales of premium products, albeit offset by the rationalization of underperforming products for Own Brands in Indonesia and Philippines. 
• For Agency Brands, excluding the cessation of distribution business in Singapore (from 31 Aug-15), sales in local currency terms rose 6.2% and 0.9% in 3Q and 9M16 respectively.

Sustained improvement in gross profit margin 

• Notably, 3Q16 gross profit margin continued to improve to 35.5% (28.4% for 3Q15, 33.3% for 2Q16). 
• We understand that the improvement has been driven to a larger extent by selective price adjustments, while various factors such as higher sales of Own Brands products, rationalization of underperforming products, favourable raw material prices and other ongoing cost containment efforts have also helped.

Maintain HOLD 

• Looking ahead, the group remains focused on both top line growth and improved productivity. Thus as the group continues to invest in channel expansion and brand building, we expect selling and distribution costs to remain high as a percentage of sales. 
• As we adjust our estimates and roll forward to 30x FY17F P/E, maintain HOLD with a slightly higher fair value estimate of S$2.39 (previous: S$2.34).

Jodie Foo OCBC Investment | http://www.ocbcresearch.com/ 2016-11-10

OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 2.39 Up 2.340