dividends

DELFI: UOB KH initiates coverage with S$1.42 target price

Excerpts from UOB KH report
Analysts: John Cheong & Heidi Mo

Delfi (DELFI SP)
An Undervalued Leader In Indonesia’s Chocolate Products Market

Delfi is a dominant market leader of chocolate confectionary products in Indonesia with around a 41% market share.

Delfi
Share price: 90 c	Target: $1.42

It has been focusing on its premiumisation strategy in offering differentiated products and undertaking acquisitions.

We expect earnings to grow 20% in 2022 and 10% in 2023 as Indonesia’s economy and consumers emerge stronger from the pandemic.

Initiate coverage with BUY and a target price of S$1.42.

Delfi is trading at a discount of 50% vs its Indonesia peers’ average.

Delfi choc

INVESTMENT HIGHLIGHTS
• Market leader of chocolate confectionery products in Indonesia, backed by positive macro trends. Delfi is a manufacturer and distributor of many popular chocolate confectionery products in Indonesia.

According to Euromonitor, it commands a dominant market share of approximately 41% in Indonesia, thanks to its early-mover advantage in building brand loyalty since the early 1950s.

Its home market, Indonesia, where it generates more than 70% of its revenue, demonstrates vast potential based on its macro industry
trends of a fast-growing middle class, a young population and high domestically-driven GDP growth.

• Well-positioned to capitalise on premiumisation trend. Delfi has been focusing on its premiumisation strategy to offer differentiated products based on changing consumer taste and increasing its focus on the modern trade sector.

High dividends

"Delfi has consistently maintained a dividend payout ratio of around 50% for many years, except for 2020 where its payout ratio increased to 84% due to Delfi’s move to maintain its absolute dividend amid a decline in EPS due to the impact of COVID-19. Given its robust free cash flow and strong net cash position, we expect the payout ratio to be maintained at at least 50% in FY22-24."

-- UOB KH

Delfi’s premium brands include SilverQueen, Delfi Premium, Selamat and Van Houten.

The acquisition of the iconic European brand Van Houten is a testament to its premiumisation strategy.

Barry Callebaut’s Top Chocolate Trends 2023 Report highlighted that consumers are now striving for intense, mindful and healthy indulgences, with 61% of the APAC market actively seeking out premium chocolates, while 56% have switched from traditional chocolates and confectionery to low-sugar alternatives.

• Expect healthy double-digit growth as Indonesia’s consumers emerge stronger from the pandemic. We expect Delfi’s earnings to grow 20% in 2022 and 10% in 2023 as Indonesia’s economy and consumers emerge stronger after the pandemic.

Bank Indonesia projects Indonesia’s economy to grow 4.9% in 2023 and 5.1% in 2024. For 2022, Indonesia’s economy grew 5.3%, a solid recovery from the pandemic years where the economy contracted by 2.1% in 2020 and grew by only 3.7% in 2021.

Rising health consciousness and a surge in disposable income are seen to be the growth drivers

Full report here.

GEO ENERGY, GEAR: Outlook for coal price, and stock valuation

Singapore-listed Geo Energy and Golden Energy & Resources are set to report sterling 2022 profits, given the strong coal selling prices of 2022. But coal price has softened in recent weeks, so what impact might this have on stock valuations and dividends? Check out DBS report below which basically says:

• Dividends from coal companies will be a catalyst in 1H23
• At US$200 per ton Newcastle coal price, coal still offers decent earnings and dividends

Excerpts from DBS Research report
Analyst: William Simadiputra

Coal price

• Coal price set to drop from record high level in 2022.

Coal price has stayed at a record high for almost twelve months. The Ukraine-Russia conflict had lifted the EU LNG price, as well as the energy spectrum in 2022.

Now, with the receding conflict and fears of a global recession in 2023, coal price could be vulnerable to a correction especially as China can start tightening its grip on commodities import policies as seen by China relaxing its import ban on Australian coal.

• Australia coal imports to China is a sign that coal remains very much in demand.

Limited downside risk

"We see the downside risk of coal price as limited since share prices did not fully price in the record-breaking earnings and coal price last year."

We view China’s reopening and April 2023 coal import resumption from Australia as positive signs that coal demand remains intact despite fears of recession and dissipating impact of war on the energy market.

European coal demand has been diminishing since December 2022 due to a mild winter and normalizing gas price trend.

• Supplies will come online slower than previous bull cycle.

Muted supply expansion will keep coal price at a decent level albeit it may lose some premium because of dissipating panic buying spree that boosted Newcastle coal price to above US$300 per ton last year.

Normalizing weather in 2023 post severe than expected La Nina in 2022 also played a role to cool down prices this year.

Geo Energy Resources
Quarterly dividends	1Q21	2Q21	3Q21	4Q21	1Q22	2Q22	3Q22	4Q22
SGD cent	0.5	0.5	3	5	2	2	1	?

Share price performance and valuation

• Coal stocks had a rough start in 2023; share prices have tumbled c.20% YTD on average after gaining 52% in 2022.

Coal stocks have corrected amid major foreign outflows from the JCI (Jakarta Composite Index) as well as on fears that coal price may tumble after hitting record high levels in the past 12 months.

Coal stocks were JCI’s best performing stocks last year.

Earnings outlook
• Decent earnings in 2023 while compelling valuation poses limited downside risk.

We see the downside risk of coal price as limited since share price did not fully price in the record-breaking earnings and coal price last year.

Meanwhile, investors are bracing for the lower earnings trend in 2023, which is reflected on the PE multiple –now well below the industry’s five-year average.

Coal stocks performed well in 2022; could it sustain its winning streak this year?

We think coal stocks have room to withstand any sell-off due to tapering coal price expectation.

Concerns over how long commodity prices can hold the current record-high level have led investors to flock to green metal companies’ potential IPOs in Indonesia.

The IPOs will likely generate interest among domestic investors, and we think also played role on early 2023 sell-off to several coal mining companies.

However, considering the earnings performance will be fuelled by non-coal business contribution, we believe we couldn’t fully compare coal price level this year to where the share price traded historically.

Full report here.