Delfi - RHB Invest 2020-02-27: Resilient Against COVID-19; Maintain BUY


Delfi - Resilient Against COVID-19; Maintain BUY

  • Maintain BUY and Target Price of SGD1.68, 73% upside plus c.4% dividend yield.
  • Delfi (SGX:P34) delivered a strong set of 4Q19 results. 4Q19 core PATMI surged 28.5% y-o-y to USD7m and lifted FY19 core PATMI to USD28.5m, (+23.8% y-o-y). This is 4% above our expectations. So far, the COVID-19 outbreak has not impacted its business. However, if the outbreak escalates or prolongs, overall consumer sentiment could be dampened, moderating sales growth.

FY19 was a strong year.

  • Delfi's GPM reached a record high 38% in 4Q19 – the highest in Delfi’s history. This brought full-year GPM to 36.2%, (+1.5ppts y-o-y).
  • Together with strong sales growth, the group achieved core PATMI of USD28.5m for FY19, its highest in the past five years. This is largely attributed to the success of the group’s premiumisation strategy in Indonesia which saw sales of its premium brands grow > 20% y-o-y and formed 60-70% of its sales mix in 2019.
  • Regional markets also saw a turnaround, led by increased sales of higher margin products and strong performance of agency brands.

Greater focus on value segment in the next 3-5 years.

  • In 2020, Delfi plans to strengthen its presence in the lower priced value format category in Indonesia. Management targets to achieve a more balance sales mix in 3-5 years.
  • We believe the launch of these new products will partially offset the slower domestic consumption outlook in 2020. We also penned in slight erosion in GPM in anticipation of rising sales mix in the value segment.

Impact on operating margins should be lower.

  • While the higher proportion on sales from premium product has driven GPM higher, the group also incurred higher costs to list and promote its products in modern trade. The shift in focus to value category could help drive operating leverage and reduce selling cost as a percentage of revenue as the value category is targeted at traditional trade channels.
  • We believe operating margins would remain relatively stable despite the shift in mix.

Decent dividend yield.

Juliana Cai RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-02-27
SGX Stock Analyst Report BUY MAINTAIN BUY 1.680 SAME 1.680