Delfi - RHB Invest 2019-11-13: Still A Good Buy


Delfi - Still A Good Buy

  • Maintain BUY with unchanged Target Price of SGD1.68, implying 76% upside with 3.6% FY20F yield.
  • 3Q19 recorded a strong core PATMI of USD6.0m (+36% y-o-y), in line with our expectation. 9M19 core PATMI of USD21.5m (+22% y-o-y) met 79% of our full-year estimates. Growth of Delfi’s own-brand sales in Indonesia continues to be a main driver of the earnings. See Delfi Announcements.
  • We remain optimistic on DELFI LIMITED (SGX:P34)’s outlook as we expect this momentum to continue into FY20F on the back of stronger domestic consumption in its key markets.

3Q19 revenue grew 9% y-o-y to USD112m.

  • Indonesia registered revenue growth of 8.4% y-o-y and 4.8% y-o-y in local currency. This was driven by stronger sales in the premium segment products, while partially offset by the cessation of lower price point value products.
  • Sales from the regional markets grew at a faster pace of 11.1% y-o-y in 3Q19, supported by both higher agency and own-brand sales. The acquisition of Van Houten also contributed positively to own-brand sales in both Indonesia and the regional market.

Premiumisation strategy continues to drive higher gross margins.

  • Delfi's 3Q19 gross margin expanded 0.8ppt y-o-y to 34.7%. This is largely attributed to the increased sales of higher-margin premium products while cutting unprofitable value products in Indonesia.

Moving into FY20F, we expect operating leverage to kick in.

  • Delfi's 3Q19 admin cost grew 14% y-o-y, but was maintained fairly stable q-o-q. We note that Delfi fully implemented the SAP (systems, applications & products in data processing) system last year.
  • We will likely see the full-year cost of implementation in FY19. As such, we do not expect a major increment in admin costs in FY20, and expect improving operating leverage next year.

Bittersweet experience

  • We continue to like Delfi for its ability to generate steady growth, driven by higher sales and margins from its product premiumisation strategy. However, despite delivering strong earnings performance, we note that Delfi’s share price has underperformed in the past few months as a result of lack of liquidity.
  • Delfi is now trading at c.14x FY20F P/E, a steep discount to Indonesian-listed peer Mayora Indah (MYOR IJ), which is trading at 22x FY20F P/E.
  • We believe the stock is still a value buy. Its consistent sets of good results coupled with dividend yield of close to 4% should help to support the share price from now on. See Delfi Dividend History.
  • Our DCF-derived Target Price remains unchanged at SGD1.68 and implies 24x FY20F P/E. See Delfi Share Price; Delfi Target Price.

Juliana Cai RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-11-13
SGX Stock Analyst Report BUY MAINTAIN BUY 1.680 SAME 1.680