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RHB keeps ‘buy’ call on Delfi despite recent earnings cuts and growing cocoa prices

Ashley Lo
Ashley Lo • 2 min read
RHB keeps ‘buy’ call on Delfi despite recent earnings cuts and growing cocoa prices
Delfi expected to be slightly impacted by growing cocoa prices. Photo: Albert Chua
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RHB Bank Singapore’s Alfie Yeo has kept his “buy” call on Delfi with an unchanged target price at $1.33, despite dips in his FY2025 - FY2026 earnings estimates and the current climate of surging cocoa prices. 

“We believe margin compression risks will be mitigated by existing inventory, price adjustment, right sizing, and passive inventory loading at higher cocoa prices”, says Yeo in his April 9 report.

Yeo anticipates a “slight” impact from growing cocoa prices stemming from supply concerns in Ghana and Ivory Coast. Cocoa prices have seen an increase of 122% reaching US$ 9,000 ($12,170) per tonne since the end of December 2023. 

With Delfi’s position as a manufacturer of chocolate confectionery, surging cocoa prices would reduce its gross margins with all other factors remaining constant. Given the significant rise in cocoa’s market price, Yeo anticipates seeing “some but not significant” impact on Delfi’s future financials. 

Additionally, Yeo notes that higher cocoa prices have resulted in “slower” revenue growth and decreased margin assumptions, culminating in an 11% - 12% decrease in FY2023 - FY2024 earnings. Yeo expects FY2024 earnings to remain unchanged due to Delfi’s forward purchase strategy and existing inventory drawdown.

However, Yeo anticipates a decrease in demand growth from potential price adjustments in FY2025, leading the analyst to further trim FY2025 - FY2026 earnings by 2% - 3%. With Delfi’s three-pronged margin mitigation strategy, the analyst expects no additional downgrades to margin assumptions. 

See also: Singtel's higher dividends keep analysts positive, target prices increase

Despite the earnings adjustment, Yeo likes the stock’s “attractive” numbers. As at Yeo’s report, Delfi was trading at 92 cents, putting it at 9 times its FY2024 P/E and near -1 standard deviation (s.d.) from the mean of 16 times. His target price is pegged to 13 times FY2024 P/E, at 0.5 s.d. from the mean.

That said, potential downside risks to Delfi’s earnings identified by Yeo include a decrease in consumption for chocolate confectionery in Indonesia amidst growing raw material prices that could affect Delfi’s gross profit margin. 

Delfi’s environmental, social and governance (ESG) score sits at a 3 (out of 4), a slight drop below the country median of 3.1. As per RHB’s in-house proprietary ESG methodology, the analyst’s target price includes a 2% discount to the intrinsic value. 

See also: Broker's Digest: Centurion, Food Empire, Frencken, Netlink NBN Trust, Thai Beverage, Singapore Airlines

As at 11.55am, shares in Delfi are trading at an unchanged 92.5 cents. 

 

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