Delfi Limited (formerly Petra Foods Limited) manufactures, markets and distributes chocolate confectionery in its core markets of Indonesia, Philippines and Malaysia.

Delfi’s revenue for 2016 was U$402 million, split between Own Brands (U$262 m) and Agency Brands (U$139 m), of which Indonesia contributed 72%, while Philippines and Malaysia contributed about 12% each.

Profit margins at Delfi dropped in 2015 but rebounded in 2016!

Delfi has a consistent record of growth and posted double-digit growth rates in the ten-years thru 2014. However, they hit a rough patch the following year with a sharp drop in profits. In response, Delfi’s management rationalized the product portfolio, focusing on their master-brands and extending their product range through channel segmentation to eliminate overlap. In tandem, they invested significant amounts to modernize their manufacturing facilities and expand their supply-chain.

Their actions were effective in restoring the company’s performance. Delfi rebounded strongly in 2016; EBITDA increased 35% to U$50 million, and PATMI increased 80% to U$28 million.

Having achieved their immediate goal of returning the company to profit, Delfi’s management is exploring strategies to accelerate growth.

Having achieved their immediate goal of returning the company to profit, Delfi’s management set out bigger goals for themselves. They have formed a board-level committee led by an experienced Director to explore strategies for sustainable growth.

Delfi scores big with JV partners Yuraku and Orion!

In the past year, Delfi has announced joint-ventures with Orion Corporation of Korea, and Yuraku Confectionery of Japan to bring their popular products to Southeast Asia. Orion and Yuraku are established brands which have wowed taste buds for decades at home and abroad. That household names from Korea and Japan should partner with Delfi and set-up manufacturing facilities in Indonesia is a vote of confidence in the company and its CEO John Chuang.

With its strong brands, and exposure to consumer discretionary spending in two of ASEAN’s fastest growing economies Delfi is literally in a sweet-spot!

Significantly, both the brands are chocolate-based and play to Delfi’s strengths as a pure-play chocolate confectioner.  Not surprisingly chocolate confectionery with its appeal to younger demographics is the fastest-growing segment in the emerging economies where Delfi operates. When the products from Yuraku and Orion are introduced next year, Delfi will have the strongest product portfolio and command premium shelf space at retail outlets. This will be a significant advantage since chocolates are mostly purchased on impulse.

Delfi – a transformation in the making!

Delfi is a well-managed company with a record of strong growth. Delfi’s management is measured about the company’s results for 2017 but it is the following years, when the JV’s contribute to the bottom line, that hold promise.  At current prices, Delfi’s stock represents low-risk and rich rewards.

Once the JV’s are operational Delfi’s will sprint ahead of competition. Its stock, at current prices. represents low-risk and rich rewards.

Currency fluctuations and commodity price increases pose a headwind. However, it is offset by the momentum of being a market-leader in chocolate-confectionery in two of the fastest-growing economies in Southeast Asia. On balance, the company should continue its strong growth and as the results are expected to improve over the medium-term, it is advisable for investors to stagger their purchase rather than time the market.

For a history of Petra Foods article .