CGS International analyst Tay Wee Kuang has lowered his target price on Delfi Limited to 88 cents from 96 cents previously as he sees “bitter times” in FY2025.
Delfi, on Feb 25, reported its results for the FY2024 ended Dec 31, 2024, where its full-year patmi fell by 26.6% y-o-y to US$33.9 million ($45.8 million). The lower patmi was due to the stronger US dollar (USD) compared to regional currencies, especially the Indonesian rupiah (IDR), although FY2024 patmi was down by 22.9% y-o-y on a constant currency basis.
Total net sales fell by 3.9% y-o-y to US$502.7 million as net sales in Indonesia fell by 7.5% y-o-y to US$314.3 million. Net sales from regional markets mitigated Delfi’s overall top line slightly with a 2.9% y-o-y growth to US$188.4 million.
To Tay, Delfi’s 2HFY2024 patmi of US$14.4 million, stood in line with his estimates, while the company’s FY2024 bottom line stood at 98.9% of his full-year expectations.
“Profitability was weighed down by elevated cocoa prices and the strengthening of USD against [the] IDR, with no signs of abatement,” Tay writes in his Feb 27 report.
During the year, Delfi’s total gross profit margins fell by 1.1 percentage points y-o-y to 27.4%. In 2HFY2024, Delfi’s margins were down by 1.8 percentage points y-o-y to 25.9%.
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“Based on Delfi’s voluntary disclosures for certain key financial data in 3QFY2024, implied 4QFY2024 gross profit margin declined 1 percentage point to 25.4%, its lowest level since Delfi restated its revenue (net of certain marketing and promotional expenses) in FY2021,” Tay notes.
“The depressed margins were a result of escalating cocoa prices as well as the strength of the USD, which cocoa is denominated in, against [the] IDR, which is Delfi’s key selling currency as Indonesia has contributed to more than 95% of its ebitda since Delfi sold off its cocoa ingredients business in 2013,” he adds.
Tay also points out that Delfi’s management has shared, at an analyst briefing held on Feb 26, that it expects near-term margins to “remain pressured” with the ongoing cocoa shortage continuing to keep prices elevated.
“Furthermore, cost pass-through remains a challenge in Indonesia as promotions, such as buy-1-get-1-free, are still commonplace, suggesting that both local and regional players are likely vying for market share in a bid to consolidate their positions in the market,” Tay remarks. “Although Delfi noted market share gains in 2HFY2024 due to its promotional spending, we concur with management that profitability is likely to remain pressured in the near term.”
With this, Tay has lowered his earnings per share (EPS) estimates for FY2025 and FY2026 by 18.9% and 8.7% respectively as he believes Delfi’s profitability will be weighed down by high raw material prices in the near term, but will gradually ease going into FY2026.
That said, the analyst has kept his “add” call on the stock as he believes the company will go through the current competitive landscape better compared to its peers due to its leading market share. Delfi has a revenue of above 40% within the Indonesian chocolate confectionary segment, Tay points out.
Furthermore, the company’s current valuations are “depressed” at 8 times forward P/E, or 1 standard deviation (s.d.) below its five-year mean of 13.8 times.
Tay’s new target price is pegged to an unchanged FY2026 P/E of 11 times.
In its results announcement, Delfi announced a final dividend per share of 1.18 US cents for 2HFY2024, bringing its total FY2024 dividend to 3.24 US cents, representing a payout ratio of 58.3% for the year.
Even though no special dividend was declared for the first time since FY2022, this year’s payout ratio remains comparable to Delfi’s payout ratio of 59.9% and 57.1% in FY2022 and FY2023 respectively.
“Management shared that Delfi will strive to maintain gross dividend value moving forward, barring a steep decline in earnings and implying a payout ratio that exceeds its dividend guidance for a 50% payout ratio,” Tay writes.
Shares in Delfi closed 0.5 cents lower or 0.68% down at 73 cents on Feb 28.
