Delfi (formerly: Petra Foods)

[dreamybear]

I think the 12 pages Q&A makes an interesting read. I do applaud the management for their elaboration and giving actual answer like believing the expected normalized sales growth could be sustainable going forward. At least, not some "answers" like we don't give revenue guidance, we aim for sustainable revenue in the long term, etc.

But of course, in-person face-to-face interaction is probably still the best.

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QUESTIONS FROM SHAREHOLDERS AND SIAS IN RELATION TO THE 2022 ANNUAL REPORT
https://links.sgx.com/FileOpen/Delfi%20-...eID=755073

[weijian]

I think the 12 pages Q&A makes an interesting read. I do applaud the management for their elaboration and giving actual answer like believing the expected normalized sales growth could be sustainable going forward. At least, not some "answers" like we don't give revenue guidance, we aim for sustainable revenue in the long term, etc.

But of course, in-person face-to-face interaction is probably still the best.

-----------------------
QUESTIONS FROM SHAREHOLDERS AND SIAS IN RELATION TO THE 2022 ANNUAL REPORT
https://links.sgx.com/FileOpen/Delfi%20-...eID=755073

Compared to many that I had read in the last few weeks, this is a pretty exhaustive and long Q&A from OPMIs. Maybe this is also indicative of the popularity of the company as an investment with (obvious) improving business prospects.

Giving actual answers can have pros and cons though, depending on how one sees it. Actual answers are good for certainty. But I for one, as an investor, prefers a healthy dose of uncertainty. This allows me the choice to decide whether to take the uncertainty premium when others don't. When there is too many certainty, the price reflects itself.

Nonetheless, a very good Q&A to enhance my learning on this company. It also "gives me the face palm" on my earlier observation that the FCF is getting really interesting with reduced CAPEX spending. I have learnt something and reduced my ignorance a little bit as a result.

[weijian]

Besides the Indonesian economy (which just elected a "business as usual" President), Delfi had flagged cocoa prices as its next biggest risk to profitability. With cocoa prices doubling from 1 year ago, will it impact Delfi's all important 1H24? (Valentine Day/Hari Raya).

The inventories turnover for Delfi is ~90days but majority of them are "finished goods". So the raw materials turnover is probably much much shorter (1-2 weeks i suppose). After a good 2023, it looks like 2024 will not be easy for Delfi.

Hershey and Cadbury chocolate makers eye price hikes to cover cocoa crunch
https://www.businesstimes.com.sg/compani...coa-crunch

Cocoa prices nearly stabilized around $5,960 per tonne, holding close to a recent peak of $6,001 per tonne, amid persistent concerns over limited supplies. Leading cocoa producers Ivory Coast and Ghana are grappling with tight supplies caused by diseases spreading in their plantations, compounded by seasonal Harmattan winds, which bring dry weather and negatively impact crop quality and yield. The El Niño-associated dryness is anticipated to exacerbate the situation, potentially leading to a further decline in cocoa output. The latest data showed Ivory Coast shipped 1.04 MMT of cocoa to ports from October 1 to February 4, down 39% from the same time last year. Simultaneously, Ghana's graded and sealed cocoa arrivals reached 341,000 metric tons by Jan. 31 since the start of this season's harvest on Sept. 1, down 35% from 521,000 tons a year ago. Meanwhile, soaring cocoa prices are already filtering through to consumers and squeezing major chocolate makers.
https://tradingeconomics.com/commodity/cocoa

[dreamybear]

The company's brands dated all the way back to 1950s and is listed since 2004. After all these years, it seems to be still focusing on Asia markets. I am curious - does the company not have an ambition to be a global player or the economics to be a global player simply do not work out?

I admit I do not know much about the company but I do not see any vision/mission statement in the website.

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https://www.delfilimited.com/about.html
Headquartered in Singapore and listed on the Mainboard of the SGX-ST since November 2004, Delfi Limited (Formerly known as Petra Foods Limited) markets and distributes its Own Brand of chocolate confectionery products in its core markets of Indonesia, Philippines, Singapore and Malaysia. In addition, our chocolate confectionery products are sold in over 10 other countries including Thailand, Brunei, India, South Korea and Vietnam.

The Group has an established portfolio of chocolate confectionery brand names in Indonesia including "SilverQueen" and "Ceres" which were introduced in the 1950's and "Delfi" in the 1980's. In the Philippines, its flagship brands are "Goya" and "KnickKnacks". With the Group's longstanding presence and legacy in these markets, our chocolates have delighted many generations of Indonesians and Filipinos, who grew up eating them.

[ghchua]

Hi dreamybear,

It is difficult to break into new Asia markets, let alone going global. Case in point is their business in Philippines. Despite being there for quite sometime, they are still way behind the market leader.

I don't see Delfi as only a brand company. Their strength in Indonesia is not only their own brands, but also agency brands as well. With their network, they can still grow in those countries that they have presence in at this moment.

[weijian]

hi dreamybear,

Chocolate has been in existence for a few centuries. The current leaders Hershey and Cadbury have been in existence since at least late 19th century, so they have been around for close to 150years. A brand (ie. Delfi) that started only after WW2, is after all just an adolescent compared to the current leaders of this category.

I concur with ghchua that it is hard to win in your market. It takes a genius to win globally. Branding 101 teaches one that brands seldom last beyond a generation as the new generation will find that the brands that their parents love, are old and "not cool". But MBA 101 has generally disproved this observation. M&As and clever rebranding by a talented Mgt seems to largely work.

Compared to Hollywood, Asians haven't been very good in exporting their culture/brand. Occasionally, maybe a brand like SIA has soar high in the sky, but behind all their brilliance, we also can't ignore there is/was plenty of government support involved.

[dreamybear]

Thx ghchua & weijian for your replies. I understand it is not easy to break into new markets or even retain the lead in existing markets.

Perhaps some further context into the origin of my question :
BW(vested) happens to be the one I am most familiar with and thus probably the only one I can use it as an eg :
There are many direct selling competitors much bigger than BW from the start but it has the vision to go global(I think broad timeline as well) and slowly realizing it.
https://www.youtube.com/watch?v=51c1U1jcaDo (2009 video)
https://www.youtube.com/watch?v=BW8a1STTqKs (2023 video - Dora's speech around 2 hour mark)

Since this is not a BW thread, I shd probably stop here.

To be clear, it's not abt recommending/undermining any company whatsoever. As an OPMI, I am just trying to sieve out companies that has the ambition/potential/working to go global and of course a fair chance of success in its endeavour. Actually, I think it wld be beneficial for a joint effort to spot potential global champions among the astronomical no. of stocks/companies out there. 

[ghchua]

Hi dreamybear,

I must emphasize again that I don't see Delfi as only a brand company. Indonesia population will grow going forward and with its vast network of coverage in the island nation, they have much to do for their agency brand distribution. Therefore, efforts should be spend in also growing its agency brand business too rather than only their own brands and risking capital in a new country where they have no foothold at all.

Why you need to take risk to go global when you can distribute global brands in your home country? Food for thought.

[weijian]

Hi dreamybear,

I must emphasize again that I don't see Delfi as only a brand company. Indonesia population will grow going forward and with its vast network of coverage in the island nation, they have much to do for their agency brand distribution. Therefore, efforts should be spend in also growing its agency brand business too rather than only their own brands and risking capital in a new country where they have no foothold at all.

Why you need to take risk to go global when you can distribute global brands in your home country? Food for thought.

For all we know, reminiscence of the beer consolidation wars in the previous decade, some global brand decides to "buy growth" and makes an irresistible offer for the founding family to sell out. After all, the one who controls the distribution, will probably control the sales of this dopamine-driven food (ie. chocolate) in the country.

@dreamybear,
If you are looking for companies that have potential to go global (or just regional), you have to put your casting net in different markets. Not say you can't do it in current market/s (ie. Asian) but the odds are against you. And when odds are against you, you need to be really good. Most of us (me inclusive) ain't that good. Asian markets have their own profitable business models, eg. efficient scale or oligopolies which are just as profitable. One just needs to know the appropriate way to fish in each waters.

[donmihaihai]

How many brand companies don't buy brand? Delfi bought something as well.

https://www.forbes.com/advisor/investing...es-stocks/.
https://www.imarcgroup.com/top-luxury-fashion-companies
In these lists, some manage their bands on a portfolio basis. a few has one or two huge brands. I would ask why so.

Some brand and product travel well but not all. I know the mindset that going global is sexy. But is it? Every industry and company are different, and I always fit into the industry, the company to look at them rather than trying to fit them into my mindset.

If Delfi is able to jump into any country they choose successfully with its existing brand or a new brand while other can't, that is great. If I remove "while other can't", then someone will do the same to Delfi, jump into Indonesia and take market share away just like that.