Net sales for the quarter rose by 6.1% y-o-y to US$124.8 million due to a favourable mix of pricing and volume gains, which saw higher net sales for Indonesia and Delfi’s regional markets. Net sales for the 9MFY2025 grew by 1.6% y-o-y to US$384.4 million.
CGSI’s Tay Wee Kuang deems Delfi’s 9MFY2025 ebitda to be in line at 64.4% of his full-year estimates as he expects festive sales to support the company’s profitability in the final quarter.
He also believes margin pressure may start to abate as cocoa prices are beginning to come off record levels.
“According to management in prior analyst briefings, Delfi manages a rolling forward hedge for key raw materials such as cocoa and sugar of up to 18 months. However, with elevated cocoa prices, we believe that Delfi could have potentially shortened the length of its forward hedges to remain nimble when it comes to managing its raw material costs,” Tay writes.
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“Recent softness in cocoa prices means that Delfi’s average cost of cocoa should start to lower as the inventory of its higher cost cocoa starts to deplete. We estimate that Delfi could start to see lower of raw material costs if it had shortened its hedge to nine months, which means we could see a repair in GP margins as soon as 4QFY2025,” he adds.
That said, Tay believes the key upside risk will depend on cocoa prices and the current softness in prices may be reflecting weaker demand from chocolate manufactures. A resurgence in chocolate demand could lead to an escalation in cocoa prices subsequently, he notes.
That said, he sees that Delfi may have also gained market share in Indonesia, which will see its profits recover quicker when cocoa prices fall.
With his upgrade, Tay has increased his target price to 81 cents from 71 cents previously, which is based on an FY2027 P/E of 12.2 times on normalising profitability. Meanwhile, he has lowered his earnings per share (EPS) estimates for FY2025, FY2026 and FY2027 by 0.1%, 0.9% and 6.5% respectively to account for stronger revenue growth but offset by lower gross profit margins in FY2027.
DBS’s Chee Zheng Feng has also increased his target price to 90 cents from 80 cents previously as he sees early signals of a recovery. Delfi’s 9MFY2025 ebitda stood above his expectations at 75% of his full-year estimates.
“With 4Q typically contributing 30% to 38% of full-year ebitda, the company appears on track to beat our forecasts, with 9MFY2025 EBITDA already accounting for 75% of our estimates,” Chee writes. “The strong ebitda performance was unexpected given the soft macro environment in Indonesia and the usual six-to-nine-month lag for cocoa price corrections to flow through to earnings.”
He adds that the outperformance could reflect the payoffs from Delfi’s sustained investments over the recent quarters and easing competitive pressures, which could’ve led the company to trim marketing spend. Chee is also bullish on Delfi’s prospects as its management appears more upbeat, hinting at a potential turnaround in the 2HFY2026.
To this end, Chee has increased his FY2025 and FY2026 earnings estimates by 27% each to reflect moderating expenses as Delfi’s management team indicated that market expenses may come in “much lower” than expected due to the elevated promotional spending in 2HFY2024 paying off.
While the analyst expects a “significant headwind” from high cocoa costs, this should begin to ease in 2HFY2026. That said, like CGSI’s Tay, Chee believes the volatile cocoa prices and competitive environment could see cocoa prices seeking another sharp spike, similar to that in late November 2024.
Chee’s new target price represents an FY2026 P/E multiple of 12 times.
Shares in Delfi closed 1.5 cents lower or 1.84% down at 80 cents on Nov 18.
