Brokers’ take: Lim & Tan Securities initiates coverage on Delfi with ‘buy’

LIM & Tan Securities has initiated “buy” on Delfi with a target price of S$1.20, on the confectionary company’s attractive valuations and strong net cash position. 

The target price on the stock is pegged to 15.8 times of the brokerage’s estimates for FY2022 earnings. It is also at a 30 per cent discount of the group’s six-year average price-to-earnings ratio of 22.5 times.

In a report on Wednesday (Feb 15), Lim & Tan analysts noted that Delfi trades at an “undemanding” valuation of 11.5 times of the brokerage’s estimated FY2022 earnings, compared with its industry peers. The research team also noted the group’s “attractive” dividend yield of 4.4 per cent.

It also said Delfi remains “relatively shielded” from the hawkish interest rate environment with a strong net cash position of US$67.3 million, which gives the group room for potential acquisitions or expansion into new markets. 

There is also growth potential in the Indonesia market. Delfi benefits from a strong foothold with first-mover advantage and a loyal customer base in Indonesia, where heavyweights such as Cadbury and Nestle have not been able to penetrate. 

The analysts also like the stock for its extensive distribution network, which covers close to 100 per cent of modern trade in Indonesia with “excellent reach” into the country’s rural areas.

This provides Delfi with additional revenue streams, as the group’s distribution expertise and robust supply chain are highly sought after by more than 100 agency brands including Kellogg’s, Pringles and Loacker. 

Furthermore, the group’s shift into new packaging designs and chocolates production to cater to the newer generation will be beneficial in coming years.

“Positive trends such as a young population and growing disposable income will continue to propel revenue growth for Delfi’s range of chocolate products,” Lim & Tan said. 

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The research team noted that Delfi chief executive officer John Chuang’s recent married deal, where he bought 2.5 million shares at an average price of S$0.78 apiece, also indicates continued confidence in the group’s prospects, as well as its attractive share price. 

Shares of Delfi were trading flat at S$0.875 as at 1.39 pm on Wednesday.