Chee Zheng Feng and Andy Sim note that cocoa price pressures and weak consumer sentiment were more severe than expected, driving higher-than-anticipated promotional spending in 1HFY2025.
"We expect these elevated costs to persist as competitors vie for share in a contracting market. With management maintaining a cautious stance on both consumer demand and cocoa prices into 2026, we believe any earnings recovery next year is unlikely to match our earlier projections," they say, while raising distribution cost assumptions, while lowering gross margin assumptions.
The way they see it, the normalisation of cocoa prices and consumer recovery key to earnings rebound. Cocoa prices remain highly volatile and elevated at above US$8,800/MT, versus a historical average of about US$2,400/MT pre-2023.
"With its product mix skewed towards Silver Queen, a high cocoa-content chocolate bar, Delfi is especially vulnerable to cocoa price swings. Soft consumer sentiment in Indonesia also limits the scope for meaningful price hikes without eroding volume or market share. A sustained earnings recovery will likely require both a pullback in cocoa prices and a recovery in consumer spending," say the analysts.
During the 1HFY2025 period, the group also declared an interim dividend of 1.0 US cent, down 51% y-o-y, representing a 50% payout ratio. Although management had guided for stable dividends, this was conditional on no significant earnings decline. "Given the cautious outlook, we expect payout to be maintained at 50% for the full year," say Chee and Sim, who have cut FY2025 dividend forecast to just 1.97 US cents from 3.24 US cents, implying a 3% yield based on an 80 cents share price.
As at 4.45pm, shares in Delfi has declined by 7.7% for the day to trade at 78 cents.
