Hit by Covid-19, chocolate confectionery company Delfi is facing an uncertain outlook, says RHB, as the company recorded 1H2020 PATMI of US$10.8 million ($14.8 million), down 30% y-o-y. RHB analyst Juliana Cai is maintaining “neutral” on the company with a raised target price of 80 cents from 74 cents previously.

“The 1H2020 results are slightly ahead of our estimates, but still below street projections. Its outlook for 2H2020 and FY2021 remains cloudy,” warns Cai in an August 13 note. 

The interim dividend was maintained at 1.27 US cents per share. “While the group saw economic activities picking up in June, business has yet to recover to pre-pandemic levels,” Cai says. 

Headquartered in Singapore, Delfi is an integrated player involved in segments ranging from chocolate production to distribution. Other than distributing its own chocolate confectionery brands, it also distributes agency brands. 

Delfi’s core markets are Indonesia – where it has a more than a 50% market share – and the Philippines, where it is a top 5 player with an estimated 10% market share. 

While Delfi booked modest y-o-y earnings growth in 1Q2020, its numbers were significantly affected in April and May, when Indonesia and the Philippines imposed strict social distancing restrictions, says Cai.

The modern trade channels were affected by shorter operating hours and temporary closures of retail malls, while the general trade channels were impacted by the temporary cessation of wholesaler and distributor businesses. “Fortunately, the decline in sales was partially offset by higher demand in the snacking, breakfast, and healthcare categories under its agency brands divisions in the regional markets,” says Cai.

While the group saw signs of recovery in June, Delfi’s near-term outlook remains uncertain, says Cai, citing the high number of new daily Covid-19 cases in Indonesia and the Philippines and contraction of these two economies,

Delfi is expected to reintroduce more stock-keeping units in the value segment in 2H2020 and FY2021F, and Cai believes this is positive for the group – since consumers are apt to downtrade in weak market conditions

“We raise FY2020-22F earnings estimates by 12%,10%, and 4% as a result of the stronger-than-expected 1H2020... Over the longer term, we continue to like the group for its strong brands, extensive distribution network, and free cash flow generation capability,” says Cai. 

As at 2.09pm, shares in Delfi are trading 0.5 cents higher, or 0.7% up, at 74.5 US cents.