Brokers’ take: UOBKH initiates coverage on Delfi with ‘buy’

UOB Kay Hian (UOBKH) initiated coverage on Delfi with a “buy” call and target price of S$1.42. This values the confectionary at 17 times price-to-earnings ratio and is pegged to Delfi’s long-term mean.

On Monday (Feb 20), UOBKH analysts said that Delfi was undervalued as the group trades at 11 times of the brokerage’s estimates for FY2023, representing a 50 per cent discount to its industry peers in the Indonesian market.

This valuation gap should narrow on the consistent delivery of good results and increased dividends, they said. 

UOBKH estimates Delfi’s earnings to grow by 20 per cent in FY2022, and 10 per cent in FY2023, with revenue growth expected to be driven by higher product volume and average selling prices in Indonesia amid the country’s post-pandemic growth.

The research team also noted the group’s “attractive” dividend yield of 5 per cent, based on the forecasted dividends per share of US$0.034 for FY2023.

They expect Delfi’s payout ratio to be maintained at a minimum of 50 per cent in FY2022 to FY2024, with a possibility of a special dividend.

This is backed by the company’s strong cash flow and balance sheet, which provides the group with a large-enough cash buffer to weather any tough conditions, the analysts said.

Citing data from Euromonitor, the team said that Delfi’s dominant market share of 41 per cent will enable the group to benefit from Indonesia’s macro industry trends of a fast-growing middle class, a young population and high domestically-driven gross domestic product growth.

Given Delfi’s “premiumisation” strategy that focuses on product differentiation and increasingly places emphasis on the modern trade sector, UOBKH believes the stock is “well-positioned” to capitalise on the trend in premiumisation, which is the science of motivating consumers to pay more for brands, products and services.

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“The acquisition of the iconic European brand Van Houten is a testament to its premiumisation strategy,” the analysts said.

Shares of Delfi were trading at S$0.92 as at 10.25 am on Monday, up 2.2 per cent or S$0.02.