“Unfortunately, the rapid rise in Covid-19 cases in Indonesia and its regional markets in 3QFY2021 impacted sales and consequently margins due to lower economies of scale,” says Chung. As a result, EBITDA margins increased 1 percentage point (ppt) y-o-y to 7.3% from 6.3% on higher gross profit margins and tighter control on operating expenses.
On a sequential basis, sales had declined 4.5% yo-y due to the rise in Covid-19 cases in its key operating markets (Indonesia, Malaysia, and the Philippines) in 3QFY2021, weakening consumer sentiment, according to Chung.
In Indonesia, this also coincided with a seasonally low quarter post Lebaran. Delfi’s 3Q2021 revenue nevertheless increased 4.1% y-o-y to US$87.0 million ($118.6 million).
Despite this, Chung deems Delfi as being an undervalued consumer stock at an attractive valuation of 12.5 times FY2022 price-to-earnings (P/E). This, says Chung, is -1.8 standard deviation (s.d.) of Delfi’s four-year historical mean and is at a 38% discount to its Indonesian-focused peer-average of 20.1 times.
“It is also positioned for recovery from FY2021-2023F, with an earnings compound annual growth rate (CAGR) of 25%,” writes Chung.
See: Delfi positioning for growth beyond the pandemic: CGS-CIMB
Chung considers Covid-19 as a main factor for Delfi’s previously tumultuous quarters. “As Covid-19 cases in its key operating regions begin to subside, vaccination rates rise, and countries learn to manage the Covid-19 pandemic better, we believe that we are past the worst quarter, which was 3QFY2020,” says the analyst.
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Delfi has also recently redesigned its SilverQueen brand to target the younger individuals in Indonesia. Delfi has launched two new healthier products as well as refreshed products under SilverQueen, according to Chung. “These efforts are to target the Gen-Z and Millennials in Indonesia, and we believe this initiative allows Delfi to capitalise on Indonesia’s growing millennial middle class,” he says.
A possible worsening of the Covid-19 pandemic in Indonesia and regional markets could be a potential risk however, the analyst noted, although Chung asserts that Delfi is “onward to brighter quarters.”
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Chung is expecting revenue to grow 8% y-o-y in FY2022, and is projecting earnings to grow 33% on the back of an improvement in margins due to economies of scale. “As Covid-19 cases in these regions begin to subside and as Indonesia’s consumer confidence index recovers, we believe that Delfi’s sales and earnings will gradually recover in the next few quarters,” he says.
At 3:11pm, shares in Delfi are up 2.5 cents or 3.23% higher at 80 cents.
Photo: Delfi
