1. It is similar to Peter Lynch's "blossoms in the dessert" concepts. High inflation and under develop logistic infrastructure makes Indonesian market very tough for multinational corporations to compete. Delfi invested a lot of time to penetrate numerous stalls and kiosks with well developed products to achieve a high market share.
2. Over the years selling and distribution cost as a percentage of revenue drops significantly. In 2016 the percentage is 19.59% and 2022 H1 is 12.64%. It shows the business scales well and these savings are flowing into the bottom line.
3. Capex from 2019 onwards greatly reduced. We should see depreciation expense in the future drops and produces a healthier margin and bottom line.
4. With >400K POS I can see Delfi makes a lot of sense for food and beverages multinational corporations to invest, eg. Vitasoy, Tingyi, Nissin Food, Ottogi...etc. Chocolate pairs well with RTD such as tea and coffee. Also these MNCs facing many challenges in their home market: persistent Covid zero strategy in China, aging population in South Korea and Japan. Vitasoy issued a poorly worded internal memo and had to face the wrath of Mainland consumers. The Chinese market is too capricious and diversification into SEA market makes a lot of sense for Chinese MNCs.
5. From 2017 and onwards the payout ratio is above 44%. There was also a massive $60 million return of capital in 2016. This shows the company is shareholder friendly and one should be well compensated while holding it.
thanks for commenting. I highly appreciate your qualified feedback.
Yes, "blossoms in the dessert" might be a godd description for Delfi. I agree that Indonesia is underpenetrated by international companies and to be fair, the logistics with thousands of islands is complicated. Indonesia at the same time is a market which is underestimated/underappreciated by investors.
Agreed on your points 2 and 3, this, in my view is also a consequence of the change in business model towards less vertical integration. Also, your fifth point capital distributions is correct but also linked to 2 and 3 which mean a better cash flow generation.
I think your point 4) is quite interesting - I had not thought about this before but think it makes sense that the distribution/POS infrastructure itself can be valuable to other companies. Thanks for pointing this out.
RCS Media looks very interesting. Bought a small stake. It seems we have a similar view on investing :) . Focus on cheap, like dividends and all around the world.
Is Delfi still going to get sold? It kind of looks like the typical Singapore no-low growth valuetrap to me. SE currencies weakened about 10% vs the USD. So LTM PE is now about 12x. And possibly they will suffer some cost inflation as well.
Hi Carsten,
I think the idea of Delfi is quite interesting:
1. It is similar to Peter Lynch's "blossoms in the dessert" concepts. High inflation and under develop logistic infrastructure makes Indonesian market very tough for multinational corporations to compete. Delfi invested a lot of time to penetrate numerous stalls and kiosks with well developed products to achieve a high market share.
2. Over the years selling and distribution cost as a percentage of revenue drops significantly. In 2016 the percentage is 19.59% and 2022 H1 is 12.64%. It shows the business scales well and these savings are flowing into the bottom line.
3. Capex from 2019 onwards greatly reduced. We should see depreciation expense in the future drops and produces a healthier margin and bottom line.
4. With >400K POS I can see Delfi makes a lot of sense for food and beverages multinational corporations to invest, eg. Vitasoy, Tingyi, Nissin Food, Ottogi...etc. Chocolate pairs well with RTD such as tea and coffee. Also these MNCs facing many challenges in their home market: persistent Covid zero strategy in China, aging population in South Korea and Japan. Vitasoy issued a poorly worded internal memo and had to face the wrath of Mainland consumers. The Chinese market is too capricious and diversification into SEA market makes a lot of sense for Chinese MNCs.
5. From 2017 and onwards the payout ratio is above 44%. There was also a massive $60 million return of capital in 2016. This shows the company is shareholder friendly and one should be well compensated while holding it.
Thanks for sharing,
Andy
Dear Andy,
thanks for commenting. I highly appreciate your qualified feedback.
Yes, "blossoms in the dessert" might be a godd description for Delfi. I agree that Indonesia is underpenetrated by international companies and to be fair, the logistics with thousands of islands is complicated. Indonesia at the same time is a market which is underestimated/underappreciated by investors.
Agreed on your points 2 and 3, this, in my view is also a consequence of the change in business model towards less vertical integration. Also, your fifth point capital distributions is correct but also linked to 2 and 3 which mean a better cash flow generation.
I think your point 4) is quite interesting - I had not thought about this before but think it makes sense that the distribution/POS infrastructure itself can be valuable to other companies. Thanks for pointing this out.
Thanks for commenting my post.
Michael Fritz of Asian Century Stocks wrote up Delfi a while back. Might be worth reaching out. He does great work & is very approachable!
RCS Media looks very interesting. Bought a small stake. It seems we have a similar view on investing :) . Focus on cheap, like dividends and all around the world.
Is Delfi still going to get sold? It kind of looks like the typical Singapore no-low growth valuetrap to me. SE currencies weakened about 10% vs the USD. So LTM PE is now about 12x. And possibly they will suffer some cost inflation as well.