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RHB initiates ‘buy’ on Delfi, calling it a ‘strong Indonesia consumer play’

Delfi may be a potential takeover target due to its market leadership and full market coverage in Indonesia: RHB.

RHB Bank Singapore analyst Alfie Yeo has initiated a “buy” call on Delfi Limited P34 with a target price of $1.65.

“We like Delfi, as it is Indonesia’s leading chocolate confectionery player with a market share of 45% -50%,” says Yeo in his report dated Oct 3.

The counter is also expected to benefit from the rise in Indonesia’s middle class and disposable income.

“The country has strong demographics and economic growth potential, with a population of 280 million people (urban consumers now comprise 57% of the total population – this is set to hit 71% by 2030), and 2023 and 2024 GDP growth of 5.1% and 4.5% based on our economics team’s estimates,” notes Yeo.

Indonesia, which accounts for 66% of Delfi’s revenue, is also expected to see more demand for chocolate confectionery. According to Statista, the country’s chocolate confectionery revenue stood at US$22.3 ($30.7 million) in 2023 and is set to expand at a compound annual growth rate of 7.4% in 2023 to 2028, largely due to higher volume sales and per capita consumption.

Delfi’s strategy to upsell its products via “premiumisation” and its healthy snacking segments, exposure to regional markets, as well as its ability to generate cash flow are also reasons behind Yeo’s positive take. Furthermore, the analyst likes Delfi’s “attractive” dividend yield of 5% and compelling valuations.

Delfi may be a potential takeover target due to its market leadership and full market coverage in Indonesia, Yeo adds, noting that the factor is a long-term catalyst for the stock.

For now, the analyst is forecasting a FY2022 to FY2025 earnings CAGR of 13%.

“The stock trades at a compelling 9.7x FY2024 P/E, which is close to -1 standard deviation (s.d.) from the mean and peer average of 16x… Our target price is pegged to 13x FY2024 P/E,” says Yeo.

Shares in Delfi closed 2 cents higher or 1.6% up at $1.27 on Oct 3.

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