UOB Kay Hian (UOBKH) analysts have lowered their target price for confectionary manufacturer Delfi Limited following its FY2024 ended Dec 31, 2024 earnings of US$34 million which missed expectations.
Analysts Heidi Mo and John Cheong have kept their “hold” call on the company with a new target price of 82 cents, down from the 86 cents previously.
As a recap, Delfi’s earnings of US$34 million for FY2024 formed 91% of the analysts’ full year forecast. The earnings miss was due to higher-than-expected promotion spending and a weaker rupiah against the US dollar.
“Together with a less favorable product mix of increased lower-margin Agency Brands contribution of 44% (vs 42% in 2023), we see margin compression, with gross and ebitda margins contracting 1 percentage points (ppts) y-o-y and 2ppt y-o-y respectively,” the March 11 note reads.
Delfi faced “continued revenue decline” of 7% y-o-y, but was more moderate at 4% y-o-y when excluding the effect of weaker regional currencies against the US dollar.
Mo and Cheong note that Delfi’s competitors continue to offer frequent discounts and promotions, and as such, the company increased its promotional spending in 2HFY2024 to fuel long-term growth and stay competitive. This led to market share growth in SilverQueen and Cha Cha brands in Indonesia.
“We expect selling and distribution expenses to continue making up around 13% of Delfi’s revenue in 2025,” they say.
Meanwhile, Cocoa prices continue to be much higher than they have historically been, leading to Delfi’s management raising prices for select brands by about 7% in anticipation of higher raw material costs.
However, the group maintains their commitment to return value to shareholders by keeping an absolute dividend of 3.24 US cents per share, barring unforeseen circumstances, note the analysts. This is backed by its strong balance sheet of cash of US$43.8 million and operating cash flow of US$52.6 million.
See also: DPS growth in sight for Hongkong Land
Mo and Cheong cut their earnings estimates for FY2025/FY2026 by 21% and 17% respectively after lowering their revenue estimates by 2% and 5% on lower brand sales. They also reduce ebitda margin forecasts by 1-2 ppts as they expect selling and distribution costs to remain high due to the continued stiff competition.
As such, they maintain “hold” with a 3% lower target price based on a higher PE-based valuation of 12 times earnings per share, pegged to 0.5 standard deviation (S.D.) below Delfi’s historical mean PE to reflect earnings that are near the bottom of the cycle.
“While the outlook remains challenging, should cocoa reach a more sustainable price level on
improved production, Delfi should see earnings recovery,” they say.
Shares in Delfi closed 0.5 cents higher or 0.662% up at 76 cents on March 12.
