CGSI downgrades Delfi, cuts target price as high cocoa prices sour sentiment

CGS International (CGSI) has downgraded its recommendation on chocolate confectioner Delfi to “hold”, from “add” previously, and slashed its target price by more than 19 per cent to S$0.71.

“We think weaker consumer sentiment, coupled with elevated cocoa prices and a weaker Indonesian rupiah against the US dollar, could pressure profitability in the near term,” said CGSI analysts Tay Wee Kuang and Tan Jie Hui in a report on Wednesday (May 21).

The analysts have trimmed their revenue expectations, and cut their earnings per share (EPS) forecasts for FY2025 to FY2027 by 15.5 to 17.4 per cent.

The new target price – lowered from S$0.88 previously – is still pegged to a price-to-earnings ratio of 11 times for FY2026, which is at 0.5 standard deviation below the mean due to expectations of weaker profitability.

This also accounts for a negative translation impact from the weakening greenback against the Singapore dollar.

Despite the gloomier outlook as Delfi braces for “macroeconomic headwinds”, the analysts noted that its revenue for the first quarter ended March was largely in line with consensus estimates.

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Delfi’s Q1 revenue dipped 0.5 per cent year on year to US$149.8 million, from US$150.7 million previously.

Revenue from Indonesia fell 4 per cent to US$99.3 million. However, on a constant currency basis, excluding the impact of a weaker rupiah against the US dollar, net sales would have been flat.

Delfi attributed the resilient sales in Indonesia to better sales for its own brands as a result of its increased promotional spending.

This helped offset decreased sales of its agency brands, where they saw a cut in promotional spending from agency partners.

Earnings before interest, taxes, depreciation and amortisation dropped 27 per cent to US$17 million in Q1.

This suggests, the analysts said, “an increase in operating expenses that resulted in poorer operating leverage”.

Despite the declining profitability, the research house noted that Delfi’s cash flow generation still remained healthy.

In the first quarter, the chocolate confectioner generated a free cash flow of US$34.4 million, up from US$23.1 million in the same year-ago period.

It also saw an improvement in its cash balance to US$70.4 million.

As at 2.30 pm on Thursday, shares of Delfi are trading flat at S$0.715.