Delfi Ltd - OCBC Investment 2017-05-11: Keeps Its Focus On Core Brands

DELFI LIMITED P34.SI

Delfi Ltd - Keeps Its Focus On Core Brands

Delfi Ltd’s 1Q17 revenue was down 10.1% YoY to US$93.1m while PATMI was a tad lower than expected, declining 33% to US$5.6m. These formed 22% and 17% of our full year estimates, respectively.
The group’s sales performance was impacted by an on-going product portfolio rationalization exercise that was implemented in 2016, which includes eliminating about 170 underperforming SKUs across its portfolio, with the bulk of elimination done in 4Q16. This was done in consideration of various factors such as sales prospects for the SKUs amid a more competitive environment.
In addition to this, the on-going review of trading terms is a reminder that costs such as retail listing fees have been getting more expensive.
Finally, 1Q17 sales also came off from a high base as 1Q16 sales recorded higher than usual trade deliveries as a reaction from reduced order levels back in 2015.

A confluence of factors had driven the improvement in gross profit margin (GPM) last year. 1Q17 GPM improved 1.1ppt to 33%, albeit lower than 38% seen in 4Q16, due to lower volume, lower sales of premium products in Indonesia, and higher trading cost (discounts and rebates) in the regional markets. As such, management sees 33% as a more normalized level, sustained by on-going cost containment initiatives.

In addition to the above, we expect selling and distribution costs to remain high given the continued investments in brand building, shelf space presence and promotions. We understand that management is positive on sales outlook, as they focus on their core brands and products, and drive forward higher margin products.
All considered, management expects FY17 financial performance to be similar to FY16, barring unforeseen circumstances.
We revise our estimates and roll forward to 30x blended FY17/18F P/E, resulting in a fair value estimate of S$2.21 (previous: S$2.37). Maintain HOLD.

Jodie Foo OCBC Investment | http://www.ocbcresearch.com/ 2017-05-11

OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 2.21 Down 2.370