Brokers' take
DELFI | BUY
TARGET PRICE: $1.47
JUNE 20 CLOSE: $1.28
RHB Securities Research, June 20
We remain optimistic for full-year results, as consumer confidence in Indonesia picks up. Meanwhile, Delfi's efforts to focus on core brands have shown positive results in sales since Q1 2018. We believe the uptick in volume could more than offset the negatives from rupiah depreciation.
Year-on-year growth could be propped up from a low base effect in 2017, when the retail environment was difficult for Delfi. Consumer spending was negatively affected by the withdrawal of electricity subsidies, while products were not readily available in mini-marts.
Delfi has since re-organised its supply chain to cater to the rise of mini-marts. Moreover, it has completed the rationalisation of stock-keeping units, which should reverse the negative trend in sales growth.
Key risks include rising raw material prices and depreciation of the rupiah. We lower gross margin forecasts, resulting in reduction to FY2019F and FY2020F earnings per share. This lowers our discounted cash flow-based target price.
Nonetheless, we think cocoa prices are still manageable, owing to Delfi's forward purchase programme. We note that current prices are still below 2016 levels and Delfi was able to generate a decent gross margin of more than 30 per cent in 2016. The rise in cocoa prices could also be partially offset by lower sugar and palm oil prices.
Upgrade to "buy" from "neutral", with a new $1.47 target price, from $1.54 previously, as we see value emerging from the retracement in share price. Valuation is also undemanding compared with other consumer companies in Indonesia and Philippines. Delfi is trading close to a five-year low of $1.28.
CITIC ENVIROTECH | BUY
TARGET PRICE: $1.06
JUNE 20 CLOSE: $0.54
UOB Kay Hian, June 20
With US President Donald Trump announcing new tariff measures on China, China's swift counter looks like the beginning of a trade war.
While Chinese export-oriented firms may suffer, Citic Envirotech is a different story, with its defensive environmental business and government contracts, with new order wins pushing to 2.7 billion yuan (S$566 million) in the year to date.
Citic Envirotech recently conducted its first share buyback in 2018, showing investors that the state-owned enterprise will not hesitate to buy back shares if price levels are too low. Citic Envirotech's future remains bright amid a favourable macro backdrop as Chinese President Xi Jinping reaffirmed China's war on pollution.
We believe that 2018 should be a year of stellar results for Citic Envirotech. The current low price-to-earnings ratio and attractive dividend yield should make this stock attractive to investors who wish to find a safe China proxy amid trade war uncertainties. Maintain "buy" and target price of $1.06.
Compiled by Annabeth Leow
Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.
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