Brokers' take

Compiled by Lynette Khoo, The Business Times



OCT 2 CLOSE: $3.70

DBS Group Research, Oct 2

The 20 per cent to 40 per cent valuation discount versus peers is an opportunity to accumulate. Singtel's core plus digital business is trading at only 5.6 times FY18 EV/Ebitda versus seven times for M1, nine times for StarHub and 7.5 times regional telco average.

Despite the 38 per cent rise in the valuation of regional associates over the last three years, the stock has been flattish, due to mounting losses in the digital businesses perhaps.

However, with digital advertising arm Amobee achieving an earlier-than-expected Ebitda breakeven in Q1 FY18, and official guidance for narrower digital losses in FY18, we expect the valuation discount to disappear.

Investors ought to value core and digital business separately with Singtel improving its execution of digital businesses. We argue that investors ought to value the core business at seven times and value the digital business separately based on revenue multiple even though it is not profitable yet.

According to our analysis, the stock offers some 17 per cent upside potential in addition to 6 per cent to 7.5 per cent yield.



OCT 2 CLOSE: $1.54

RHB Research, Oct 2

Delfi generates about 70 per cent of its topline from Indonesia.

This year, the consumer purchasing power of the lower middle-income group in Indonesia has been gravely impacted by lower commodity prices and higher electricity prices.

This, together with the rationalisation of stock keeping units (SKUs) by Delfi, has resulted in a 10 per cent drop in revenue for H1 2017. According to management, the majority of the product rationalisation exercise is now complete. As such, the impact from the culling of SKUs should be limited in FY18.

With the government's plan to increase its non-cash subsidy to additional lower middle-income groups, we expect to see higher consumer spending in Indonesia in FY18, which should be positive to Delfi's sales.

With a potential increase in sales next year, we think distribution cost as a percentage of sales should be contained. As at H1 2017, Delfi secured a gross margin of 33 per cent and we do not expect any gross margin erosion at current cocoa prices.

The company's share price has corrected by 31 per cent due to the soft Q2 2017 results.

At the current share price, Delfi is trading at a 24 times FY18 price-to-earnings (PE) ratio. Historically, the stock traded at a forward PE of 33 times. We see value emerging at this level.

Downside risks include a slow recovery in consumer sentiment and increased competition from foreign brands.

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