Delfi - RHB Invest 2020-07-15: Lacklustre Outlook Amid Rising COVID-19 Cases


Delfi - Lacklustre Outlook Amid Rising COVID-19 Cases

  • Surging new cases of COVID-19 in Indonesia and the Philippines continue to weigh down on Delfi’s outlook. We note that parts of Manila would shut down again this week while Jakarta may also tighten restrictions if the numbers continue to rise.
  • Whilst Delfi’s higher sales mix in the premium segment could help mitigate the decline in the value segment, we see risk of slower consumption recovery if COVID-19 pandemic continues.
  • Downgrade Delfi to NEUTRAL with an unchanged SGD0.74 Target Price.

Resurgence of COVID-19 cases in core markets poses downside risks.

  • Indonesia and the Philippines are Delfi (SGX:P34)’s core markets, attributing c.70% and c.15% of sales, respectively. Both countries saw new cases spike to above 2,000/day this month, just one month after the relaxation of restriction measures. The city of Navotas, which is part of metro Manila, will go back into lockdown this week, while the Governor of Jakarta also hinted to the possibility of tightening restrictions if daily cases remain high.

Some impact on distribution channels if another lockdown happens.

  • In Indonesia, sales from general trade were most heavily impacted when the large-scale social distancing (PSBB) measures were implemented. Sales were skewed to minimarts, which remained resilient during the period as they were allowed to operate and are located close to homes.
  • Fortunately, Delfi has built up its premium portfolio over the last few years. Prior to COVID-19, c. 70% of Delfi’s sales mix was in the premium segment with products predominantly sold through modern trade channels. This would help mitigate the lower sales in the general trade.
  • In the Philippines, mall closures during lockdown affected the sales in the supermarkets located in the malls, though standalone shops remained open. Given that only Navotas city is impacted by another lockdown, the overall sales impact on distribution channels should be limited for now.

Consumer sentiment likely to hamper demand.

  • Consumer purchasing power has been dragged down by the record high unemployment rate in both Indonesia and the Philippines. The resurgence of COVID-19 cases and the possibility of another lockdown are likely to weigh on both financial and health concerns. We believe consumption recovery for snacks and confectionery products would be slow if this situation persists.

NEUTRAL for now.

  • Delfi is currently trading at about 20x FY20F P/E, we think the valuation is fair as the Indonesian peers have also retreated slightly. We note that its closest peer, Mayora Indah (MYOR IJ) now trades at 23x FY20F P/E.
  • On the currency, our in-house economist expects the USD/IDR to trade at 15,500 for FY20F. This is low compared to the current rate and could pose some upside to our earnings if not materialised.
  • See Delfi Share Price; Delfi Target Price; Delfi Analyst Reports; Delfi Dividend History; Delfi Announcements; Delfi Latest News.
  • The implementation of another round of large-scale restrictions in the core markets would be a key downside risk to our 12-month outlook.

Juliana Cai RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-07-15
SGX Stock Analyst Report NEUTRAL DOWNGRADE BUY 0.740 SAME 0.740