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Broker's take: RHB upgrades Delfi to 'buy' following share price correction

RHB has upgraded confectionery maker and distributor Delfi to "buy" from "neutral", despite the company's weak second-quarter results, as its share price has corrected by 31 per cent. RHB expects that the company will recover in FY18, bolstered by improved consumer spending in its target markets and cost cutting at the company.

It raised its target price to S$1.86, a 22 per cent increase over its current price of S$1.52.

The downturn in consumer purchasing power and higher distribution costs faced by the company has been factored in, RHB says, setting the stage for a recovery in share price.

Indonesia plans to increase its non-cash subsidy to more lower middle-income groups, which RHB expects will boost consumer spending in Delfi's key market.

RHB also highlighted Delfi's likely recovery from expanded distribution to the burgeoning number of convenience stores.

The company also secured a gross margin of 33 per cent for H1 2017, aided by falling cocoa prices.

RHB cautioned in its research note that risks included a slow recovery in consumer sentiment and increased competition from foreign brands.

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