"We believe Delfi remains a long-term takeover target, on its strong market share and extensive distribution network across Indonesia," he adds.
In Delfi's 9MFY2025 ended September, revenue of US$384 million was below Yeo's estimates. The slight growth was driven by stronger regional sales, offset by a slight decline in Indonesia, which was dragged by a dip in agency brand sales due to reduced promotional support from certain agency partners in 1HFY2025.
However, the strong 3QFY2025 performance by its key brands in Indonesia helped to mitigate the overall sales decline to just 1.7% y-o-y. Strong regional market sales were led by Malaysia, and the Philippines particularly in 3QFY2025. Gross profit margin (GPM) for 9MFY2025 was 26.8% (-1.3 percentage points) on weaker IDR, increased promotion spending for own brands and lower margins from agency brands.
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Delfi has operated through a period of high cocoa prices from January 2024. "We believe the FY2024 GPM decline (27.4%) from the average of about 30% annually over the prior five years is reflective of the higher cocoa price environment," says Yeo.
However, since May this year, cocoa prices have eased significantly (by about 47%) to under US$6,000 per tonne currently. This should help to lift the pressure on its input costs and GPMs.
With that, Yeo has slashed FY2025-FY2026 earnings by 38% and 36% to account for 1HFY2025's earnings miss, but imputed a margin expansion for FY2026-FY2027 to reflect lower cocoa prices. "As a beneficiary of relatively lower cocoa prices henceforth, we expect earnings growth to accelerate into FY2027 as it depletes its higher priced cocoa inventory over FY2026," says Yeo.
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UOB Kay Hian (UOBKH) on the other hand is keeping a "hold" recommendation an 82 cents target price. While analysts Heidi Mo and Tang Kai Jie note that cocoa prices have corrected from US$12,000/ tonne to US$5,000/ tonne, the price still remains double that of the 10-year average, suggesting that markets will remain tight.
West African plantations remain aged and under-invested, swollen-shoot disease risks persist, while production remains highly concentrated in Ghana and Côte d’Ivoire (forming 60% of global output). Meanwhile, global chocolate demand continues to rise, led by Asia and premium segments. These suggest that cocoa markets, though off their peaks, will remain tight and volatile.
The UOBKH analysts also note that despite better 3QFY2025 demand, profitability continued to be weighed down by the residual impact of elevated cocoa prices, a weaker Indonesian rupiah (-4% y-o-y) and heavier promotional investments. Ebitda for 9MFY2025 fell 17% y-o-y to US$35 million, forming 60% of the research house's full-year estimate, while gross margin contracted to 26.8%.
While cocoa prices have eased from extreme levels, structural supply constraints, sustainability-linked cost increases and rising consumer preferences for premium chocolate are likely to keep upstream costs elevated. Delfi is focusing on productivity gains, selective pricing actions, supply-chain optimisation and product resizing to mitigate volatility. "Near-term profitability is expected to remain constrained, but Delfi’s strong brand equity, wide distribution network and improved balance sheet position it well for margin recovery once industry conditions stabilise," say Mo and Tang.
As at 10.15am, shares in Delfi are trading at 80 cents, 3.2% up ytd.
