Lim & Tan Securities has lowered its target price for Delfi to $1.04 from $1.30, but kept its &ldquo accumulate&rdquo call on the chocolate manufacturer as it has &ldquo attractive yields while awaiting recovery&rdquo . 

 

This report follows the group&rsquo s 1HFY2024 results, in which CGS International previously also lowered its target price to 93 cents but maintained its &ldquo add&rdquo call.

 

Lim & Tan&rsquo s analyst Chan En Jie says that Delfi&rsquo s 1HFY2024 results came in below expectations, with revenue and net profit coming in at 46% and 42% of his full year forecast. 

Revenue declined 7.8% y-o-y to US$260.8 million ($340.12 million), impacted by several headwinds including a weaker Indonesian rupiah against the US dollar, weaker consumer spending as well as termination of an agency brand in Indonesia. 

 

The main contributor to weaker sales is due to a declining rupiah against US dollar, which also impacted raw material costs bought in US dollar, notes the analyst. 

 

He says that excluding forex impact, total revenue saw a smaller y-o-y drop of 3.3%, but the exchange rate differences may have found support since July 2024 from the upcoming US rate cuts. 

 

As cocoa prices have skyrocketed, almost tripling from US$3,500 per ton to US$9,000 per ton over the past year, rising cocoa prices will inevitably compress margins unless price adjustments are passed on to customers, says Chan. 

 

Meanwhile, gross margins of 28.8% saw a slight drop as Delfi reduced trade promotions to defende margins from higher cocoa coasts, the analyst adds.

 

&ldquo Delfi&rsquo s SilverQueen brand name is culturally connected to Indonesians, and Delfi is confident the pricing power of its brands enable them to pass through price increases when necessary,&rdquo says Chan. &ldquo Management believes current cocoa prices of more than US$9,000 per ton are unsustainable which will likely encourage farmers to plant more beans and increase supply.&rdquo

But despite lower earnings, Delfi maintained its interim dividends at 2.72 cents, he adds. &ldquo Backed by stable cash flows and a strong net cash position, we believe Delfi has the capacity to maintain full year dividends, an attractive 7.2% yield,&rdquo Chan continues. 

 

Chan bases his valuations on 12.9 times FY2024 P/E, and cuts his previous FY2024-FY2025 revenue and earnings estimates by 11%/10% and 22%/21% respectively in view of higher cocoa prices and rupiah/US dollar weakness. 

 

At its current share price of 80 cents, Delfi&rsquo s valuations of 9.9 times forward P/E and 1.4 times P/B are at a deep discount relative to its historical average and peers, the analyst adds. 

Confectionery maker&rsquo s performance dips on the back of lower sales and currency weakness 

 

CHOCOLATE and confectionery manufacturer Delfi : P34 0% posted a 22.3 per cent drop in its net profit for the first half of the year ended Jun 30, to US$19.6 million, from US$25.2 million in the year-ago period.

 

Revenue slid 7.8 per cent to US$260.8 million from US$283 million.

 

In a bourse filing on Tuesday (Aug 13) the company attributed the performance to weakened regional currencies and reduced sales as a result of lower spending on trade promotion.

 

It noted that on a constant-currency basis, revenue and net profit would have been lower by 3.3 per cent and 17.4 per cent, respectively.

 

Purchases of raw materials were hit by the rupiah weakening against the US dollar, reducing gross profit margin by 0.4 basis points to 28.8 per cent.

 

Delfi said it made a strategic decision to reduce promotional spending on its own brands, so sales took a dip as a result. It also terminated one of its agency brands, reducing sales in that segment by 2.1 per cent.

 

Own-brand sales revenue dipped to US$148 million from US$167.8 million agency-brand sales revenue slid to US$112.8 million from US$115.2 million.

 

Geographically, Indonesia revenue declined 10.7 per cent to US$169.7 million. In the regional markets, revenue dipped by 1.9 per cent to US$91.1 million.

 

On a per-share basis, its earnings were 3.2 US cents, down from 4.12 cents in the previous corresponding period.

 

Delfi declared an interim dividend of 2.06 US cents per share, to be paid out on Sep 12.

 

It said it would continue investing in building brands for products that promise future growth, and strengthen its routes to market to support the long-term growth of the business.

The chocolate maker posts a 5.3 per cent dip in its first-quarter net sales to US$150.7 million, from US$159.1 million the year before

CHOCOLATE confectioner Delfi booked an 8.5 per cent fall in its earnings before interest, taxes, depreciation and amortisation (Ebitda) to US$23.3 million in the first quarter ended Mar 31, from US$25.5 million the year before.

 

There was also a 5.3 per cent year-on-year decline in its first-quarter net sales to US$150.7 million, from US$159.1 million.

 

In a business update on Tuesday (May 28), the group attributed the lower net sales to its decision to &ldquo reduce and refocus spending on trade promotions&rdquo , and also to weakness in the regional currencies against the US dollar.

 

Sales in Indonesia fell 6.6 per cent to US$103.5 million in the first quarter, from US$110.7 million a year earlier. The confectionary company said the poorer performance was due to lower sales in the company&rsquo s own brands, following its strategic decision to undertake fewer, but more targeted, trade promotions.

 

Meanwhile, sales in its regional markets &ndash comprising Malaysia, the Philippines and Singapore &ndash dropped 2.5 per cent to US$47.2 million in the first quarter, from US$48.4 in the previous year.

 

This was also due to poorer sales performance of the company&rsquo s own brands in the Philippines, and the impact of weaker local currencies.

 

The group generated healthy net cash from operations of US$35 million in the first quarter, up from US$27 million in the corresponding year-ago period. The net cash from operations went into funding capital expenditures of US$11.9 million, said the group.

 

Delfi said the heightened geopolitical challenges, macroeconomic uncertainties, high interest rates, supply-chain disruptions and rising commodity prices may dampen consumer confidence in its key markets in 2024.

 

But it remains confident that it can get around these risks by focusing on growing its core brands and further driving growth in its premium- and value-format categories, as well as implementing initiatives to mitigate higher input costs.

 

The group will also work more closely with its retail partners to enhance consumer engagement and drive demand.

 

*****Message from the CEO in Annual Report