Delfi Limited - OCBC Investment 2017-02-24: Keeping our view

Delfi Limited - OCBC Investment 2017-02-24: Keeping our view DELFI LIMITED P34.SI

Delfi Limited - Keeping our view

  • FY16 results within expectations.
  • Better profitability.
  • Favourable cocoa ingredients prices.

FY16 results within expectations 

  • Delfi Limited reported a better set of earnings that was largely within expectations. 
  • 4Q16 revenue was up 5.6% YoY to US$105.6m while net profit grew to US$3.7m from US$0.8m. 
  • On a full year basis, revenue was marginally down 0.9% to US$402.1m, which met ~100% of our FY16F estimate, while PATMI was higher at US$26.2m vs. a net loss of US$4.7m. 
  • Excluding an exceptional charge of US$2.0m against certain claims notified by Barry Callebaut, PATMI formed 92% of our full year estimate.

Strong showing in gross profit margin 

  • Notably, gross profit margin continued improving sequentially, reaching an all-time high of 38.4% in 4Q16 (3Q16: 35.5%, 4Q15: 30.8%), which was underpinned by a confluence of factors.
  • Particularly, in the Own Brands space, the group saw higher sales of premium products, which offer better margins than the value products, albeit this saw some seasonal effect due to the run-up to Chinese New Year and Valentine’s Day.
  • Nonetheless, pricing and sizing adjustments that were earlier introduced also contributed to the improved margins. We understand that cocoa ingredients prices had also came down. 
  • Looking ahead, the group continues to buy forward its raw material needs and coupled with on-going cost containment efforts, we believe margins can at least sustain at decent levels.

Maintain hold 

  • With the new factory in Indonesia completed, depreciation would be higher, and as the group continues to invest in channel expansion, we expect selling and distribution costs to remain high as a percentage of sales. 
  • Nonetheless, this investment is expected to translate to revenue growth. As such, we tweak our estimates to reflect this and introduce FY18F estimates. Based on an unchanged 30x FY17F P/E, maintain HOLD with a slightly lower fair value estimate of S$2.37 (previous: S$2.39). 
  • A final dividend of 1.35 S-cents/share was declared, bringing total DPS to 3.18 S-cents (50% dividend payout) vs. 2.86 S-cents (including special DPS of 1.11 Scents) last year.

Jodie Foo OCBC Investment | http://www.ocbcresearch.com/ 2017-02-24
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 2.37 Down 2.390