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UOBKH adds Delfi, drops ThaiBev, DBS, SIA Engineering from alpha picks

Jovi Ho
·4-min read

UOBKH’s alpha picks portfolio has beaten the STI for 11 out of the past 12 months.

UOB Kay Hian (UOBKH) analysts are adding Delfi P34 to their alpha picks for March, while removing Thai Beverage Y92, DBS Group D05 and SIA Engineering S59.

“For March, we have included newly-initiated Delfi into our portfolio due to higher upcoming contributions from Indonesia which will boost revenue and earnings. Additionally, we have taken profit on DBS and Thai Beverage, and also removed SIA Engineering,” write UOBKH analysts in a March 3 note.

Despite overall bearish investor sentiment in February, UOBKH’s alpha picks portfolio “easily outperformed” the Straits Times Index (STI) by 3.7 percentage points (ppts) on an equal-weighted basis.

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UOBKH’s portfolio was up 0.6% m-o-m on an equal-weighted basis versus the STI’s 3.1% decline. “On a price-weighted basis, our portfolio still outperformed the STI by 0.8 ppt,” says UOBKH.

Coming off buoyed investor sentiment from end January, the STI continued to inch higher in early February in hopes of the US Fed turning dovish and slowing down interest rate hikes.

However, unexpected hot US consumer inflation data and a robust US jobs market in January raised doubts that a “soft landing” was achievable, sending global markets downwards with the STI dropping 3.1% m-o-m, notes UOBKH.

UOBKH’s alpha picks portfolio has beaten the STI for 11 out of the past 12 months. “Our portfolio’s top performers were driven by small-mid caps, notably Civmec P9D (up 11.8% m-o-m) and Food Empire F03 (up 10.6% m-o-m), which posted robust 2022 results along with higher-than-expected dividends.”

Keppel Corp BN4 (up 11.4% m-o-m) rose on the back of strong 2022 results as well as a more positive view on the sale of Keppel Offshore Marine to Sembcorp Marine, notes UOBKH.

Meanwhile, underperformers were SIA Engineering (down 7.2% m-o-m), CapitaLand Ascott Trust HMN (down 7.0% m-o-m) and Thai Beverage (down 6.1% m-o-m), dragged by weaker-than-expected results, overall market weakness for S-REITs and increased operating costs respectively.

DBS and Thai Beverage have both outperformed, having risen 15.9% and 7.6% respectively since their inclusion into the portfolio. UOBKH is hence taking profit and removing them from its portfolio. “We also remove SIA Engineering from our portfolio as we do not see any material share price catalysts in the near term.”

For March, UOBKH’s alpha picks portfolio comprise Capitaland Ascott Trust, Genting Singapore, Keppel Corp, Mapletree Logistics Trust M44U, Sembcorp Industries U96, Singtel Z74, Civmec, Food Empire, Yangzijiang Shipbuilding BS6 and Delfi.

‘Buy’ Delfi

Delfi is a manufacturer and distributor of many popular chocolate confectionery products in Indonesia. According to Euromonitor, it commands a dominant market share of around 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, write UOBKH Research analysts John Cheong and Heidi Mo.

The analysts maintain “buy” on Delfi with a target price of $1.71.

As a market leader of chocolate confectionery products in Indonesia, Delfi is backed by positive macro trends, write Cheong and Mo.

Delfi is also well-positioned to capitalise on the premiumisation trend, they add. “Delfi has been focusing on its premiumisation strategy to offer differentiated products based on changing consumer tastes.”

Delfi’s premium brands include SilverQueen, Delfi Premium and Van Houten. In 2022, core profit grew 68.7% y-o-y to US$43.6 million ($58.64 million), mainly driven by strong performance in Delfi’s main operating market, Indonesia, which recorded revenue of US$317.4 million, up 17.5% y-o-y.

Cheong and Mo expect “healthy double-digit growth” in 2023-2025 as Indonesia’s consumers emerge stronger from the pandemic.

“We estimate total revenue at US$518 million-US$597 million (three-year CAGR of 4.8%) and net profit at US$47 million-US$53.9 million (three-year CAGR of 4.7%). The key growth drivers will be an increase in Delfi’s product volume and average selling price in Indonesia; healthy growth in Indonesia’s economy after the pandemic, where we expect Delfi’s revenue to grow 10% in 2023-2025, with Bank Indonesia projecting Indonesia’s economy to grow 4.9% in 2023 and 5.1% in 2024; and gradual improvement in gross margin as Delfi continues to gain traction in its premiumisation strategy.”

As at 1.36pm, shares in Delfi are trading 1 cent higher, or 0.94% up, at $1.07.

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