Brokers’ take: CGS-CIMB raises earnings expectations for Delfi after upside revenue surprise

CGS-CIMB has raised Delfi’s target price to S$1.28 from S$1.09 previously, while maintaining its “add” call on the stock. 

This comes after Delfi reported H1 revenue of US$246.3 million, beating the research house’s expectations at 56.6 per cent of FY2022 estimates and surpassing pre-Covid levels of US$226.9 million in H1 2019. 

CGS-CIMB foresees lasting operating leverage on sustained revenue momentum, supporting an attractive dividend yield of about 5 per cent. 

As such, the research house has increased its earnings per share estimates by 26.5 per cent for FY2022, 24.4 per cent for FY2023, and 24.3 per cent for FY2024.  

“We share management’s optimism on the growth prospects of its key operating markets in Indonesia and the Philippines, where healthy GDP (gross domestic product) growth expectations could continue to support higher consumption levels of chocolate confectionery and adjacent food categories,” said CGS-CIMB analysts. 

Their bullish sentiment is underscored by Delfi’s generation of US$16.9 million in free cash flow in H1 2022. This helped to support the group’s declared interim dividend of 1.58 US cents which, in their view, amounts to a total dividend payout of US$9.6 million and represents a payout ratio of 50 per cent that was in line with historical levels. 

They believe that the strong cash generation of the business will continue to support the current payout ratio. 

The group’s projected gross profit margin, however, has been lowered by 1.5 percentage points to 29 per cent as CGS-CIMB believes cost of goods sold could “creep up” moving forward. 

“The company’s hedging policy allows for cost visibility, with a forward cover of up to 9 months across key raw materials, such as cocoa, sugar and milk, which will allow Delfi to plan ahead with regard to cost management measures,” said the analysts.

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Delfi H1 earnings up 57.6% on stronger sales performance; declares interim dividend of US$0.0158

“Sales mix across value and premium products could also affect blended gross profit margins, but we think that the diverse exposure across various trade channels is part of Delfi’s strength in having an established distribution network,” they added. 

As at 4.24 pm on Friday (Aug 12), shares of Delfi were trading at S$0.79, up S$0.05 or 6.8 per cent.