Delfi - RHB Invest 2020-08-13: Hit By COVID-19; Maintain NEUTRAL


Delfi - Hit By COVID-19; Maintain NEUTRAL

  • Maintain NEUTRAL, new SGD0.80 Target Price from SGD0.74, 8% upside with c.4% yield.
  • Delfi recorded 1H20 PATMI at USD10.8m, down 30% y-o-y on a 12% y-o-y decline in sales. The 1H20 results are slightly ahead of our estimates, but still below Street projections. Its outlook for 2H20 and FY21 remains cloudy. The interim dividend was maintained at 1.27 US cents per share. 
  • While the group saw economic activities picking up in June, business has yet to recover to pre-pandemic levels.

Delfi's 1H20 results largely affected by COVID-19, especially in 2Q20.

  • Delfi (SGX:P34) booked modest y-o-y earnings growth in 1Q20, but its numbers were significantly affected in April-May, when Indonesia and the Philippines imposed strict social distancing restrictions.
  • The modern trade channels were affected by shorter operating hours and temporary closures of retail malls, while the general trade channels were impacted by the temporary cessation of wholesaler and distributor businesses. Fortunately, the decline in sales was partially offset by higher demand in the snacking, breakfast, and healthcare categories under its agency brands divisions in the regional markets.

EBITDA margin declined 1ppt y-o-y to 12.1%.

  • Delfi registered a higher GPM of 36.3% (+0.3ppt y-o-y) on the back of a higher sales mix of premium products in Indonesia, price adjustments, product right-sizings, and the ability to lock in costs through its forward-purchase programme for raw materials.
  • However, the EBITDA margin narrowed by 1ppt on declining operating leverage and higher operational costs, as Delfi implemented comprehensive measures to mitigate the risk of COVID-19, which also reduced production capacity.

Near-term outlook remains uncertain.

  • Delfi has seen signs of recovery in June. However, given the high number of new daily COVID-19 cases in Indonesia and the Philippines and contraction of these two economies, the trajectory of this recovery remains unclear. Delfi is expected to reintroduce more stock-keeping units in the value segment in 2H20 and FY21F, and we believe this is positive for the group – since consumers are apt to downtrade in weak market conditions.

We raise Delfi's FY20-22F earnings estimates

Juliana Cai RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-08-13
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 0.80 UP 0.740