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$DELFI LIMITED(P34.SI)$

Delfi positioning for growth beyond the pandemic: CGS-CIMB

CGS-CIMB analyst Tay Wee Kuang has reiterated his “add” rating for Delfi with an unchanged target price of $1.02 following a recent non-deal roadshow meeting with the company.

In a Sept 28 research note, Tay highlights that Delfi’s management shared its concerns on short-term uncertainties facing the company in light of the ongoing Covid-19 situation. Lower footfall at supermarkets and hypermarkets due to restrictions have resulted in lower chocolate confectionery sales.

Delfi's recovery continues to be affected, as the Covid-19 situation in key operating markets like Indonesia and the Philippines remains uncertain following a resurgence of cases as well as low vaccination rates. “Nevertheless, we believe that Delfi will take no longer than two quarters for sales to recover once the situation stabilises,” Tay opines.

He also points out that Delfi has started positioning for growth beyond Covid-19 through the optimisation of its offerings. In 2020, Delfi launched two new flavours under its Indonesia flagship brand that targets Gen Z and millennial consumers. It has also rationalised its route-to-markets to improve service quality. Initiatives include bringing parts of the company's distribution capabilities in-house through its own fleet of trucks.

Tay believes that Delfi could potentially grow its market share in the Philippines, which is its second core market, through the introduction of other brands within its portfolio from adjacent categories. “Although Indonesia and the Philippines share similar business models with sales anchored on key brands, differences in brands’ product categories meant a different consumer profile,” he remarks.

Currently, Delfi’s brands in the Philippines target the mid-to-value level of consumption. Meanwhile, in Indonesia, a larger product range across various chocolate categories and price points captures all levels of consumption

He reiterates his call and target price, pointing out that Delfi continues to trade at a discount to peers’ average P/E of 28.8 times for 2021 and below one standard deviation of its three-year historical mean. “We expect valuations to re-rate given its recovery and growth prospects, pegging our target price at three-year historical average P/E of 20 timesto FY2022 earnings,” he explains.

For Tay, re-rating catalysts for Delfi include a swifter reopening of Indonesia following a faster vaccination rollout, while downside risks include the reinstatement of movement restriction measures.