Delfi (formerly: Petra Foods)

[weijian]

Hi Yoyo,

I have observed and learnt much from VB Behappyalways, who has made some astute calls on "supernormal profits" in the past few years - (a) Rise of freight rates that benefit ship charterers post covid, (b) foreign worker dorm rates rising on the back of rising Spore construction demand, © rising gold prices which benefit pawnshops. --> While all in different industries, but all have a similar theme of relatively fixed operating costs that meets a "sudden" price increase in the main product/service they sell, isn't it? So while there are many variables in the determination of profit as we calculate via a P/L sheet, the ultimate "supernormal profit" boost isn't very far from first understanding when the capital cycle is turning, and then looking for those with fixed costs.

I spend time posting on VB, in a hope to be proven wrong more than right. There is more value been proven wrong than stay in an echo chamber. Therefore, any time I get new perspectives and/or proven wrong gives me more impetus to learn and post more.

[weijian]

Thesis – Steep drop in input cost of cocoa on the back of elevated chocolate price (relative price inelasticity), present a nice platform for supernormal profit.  It is highly probable that Delfi profit will jumped markedly in 2026. (though magnitude may be somewhat reduced if Delfi adopted hedging position longer than 12 months)  So, has it been fully priced-in Delfi share price of $0.95?  Or is there really an opportunity for capital gain in 12 months time?  Would like to hear from fellow VBs.

Vested with a small position.  Thinking of adding.

A shareholder has asked and Delfi Mgt has shined some light on it.

Since Delfi is a manufacturer, it deals with forward purchases than buying futures, ie. At contract expiry date, it takes delivery of the actual goods at contract price than settling differences between spot-contract. Therefore based on FIFO (First In First Out) inventory system and what Mgt has revealed below, impact of high cocoa prices will probably be only fully felt in 2026.

QUESTIONS FROM SHAREHOLDERS IN RELATION TO THE 2025 ANNUAL REPORT

When can we expect to see the effects of low cocoa prices on the company's results?

Response: We are encouraged by the decline in cocoa prices and its anticipated benefits for the confectionery industry. However, as chocolate manufacturers, including Delfi, hedged ingredient costs to mitigate peak cocoa prices during 2024 and 2025, margin improvements will not align linearly with the substantial decline in cocoa prices recently (c. 75% from the 2025 peak). As a result of this, there will be a lag before lower costs are reflected in the cost base as existing forward contracts expire and inventory are worked through.

Delfi anticipates that, consistent with the broader industry, a gradual margin recovery may be expected. This timeline depends on inventory levels, forward contract durations, and finished goods delivery schedules.

We expect the impact from the Middle East conflict and resulting uncertainties to temper these benefits, however we remain focused on disciplined pricing and operational efficiency to navigate these headwinds

https://links.sgx.com/FileOpen/Delfi%20-...eID=885397

[weijian]

Thesis – Steep drop in input cost of cocoa on the back of elevated chocolate price (relative price inelasticity), present a nice platform for supernormal profit.  It is highly probable that Delfi profit will jumped markedly in 2026. (though magnitude may be somewhat reduced if Delfi adopted hedging position longer than 12 months)  So, has it been fully priced-in Delfi share price of $0.95?  Or is there really an opportunity for capital gain in 12 months time?  Would like to hear from fellow VBs.

Vested with a small position.  Thinking of adding.

A shareholder has asked and Delfi Mgt has shined some light on it.

Since Delfi is a manufacturer, it deals with forward purchases than buying futures, ie. At contract expiry date, it takes delivery of the actual goods at contract price than settling differences between spot-contract. Therefore based on FIFO (First In First Out) inventory system and what Mgt has revealed below, impact of high cocoa prices will probably be only fully felt in 2026.

QUESTIONS FROM SHAREHOLDERS IN RELATION TO THE 2025 ANNUAL REPORT

When can we expect to see the effects of low cocoa prices on the company's results?

Response: We are encouraged by the decline in cocoa prices and its anticipated benefits for the confectionery industry. However, as chocolate manufacturers, including Delfi, hedged ingredient costs to mitigate peak cocoa prices during 2024 and 2025, margin improvements will not align linearly with the substantial decline in cocoa prices recently (c. 75% from the 2025 peak). As a result of this, there will be a lag before lower costs are reflected in the cost base as existing forward contracts expire and inventory are worked through.

Delfi anticipates that, consistent with the broader industry, a gradual margin recovery may be expected. This timeline depends on inventory levels, forward contract durations, and finished goods delivery schedules.

We expect the impact from the Middle East conflict and resulting uncertainties to temper these benefits, however we remain focused on disciplined pricing and operational efficiency to navigate these headwinds

https://links.sgx.com/FileOpen/Delfi%20-...eID=885397

Delfi's 1H26 results are out. Since revenue is seasonal with 1H>2H, 1H26 results are probably the bellwether for FY26.

- On topline growth: On a constant currency basis and excluding the termination of an agency distribution agreement (in 3Q25), Own Brands and Agency Brands have actually grown by 17% and 29% YoY respectively. IMO, this is surprisingly strong!

- On the impact of cocoa prices on margins: A rough estimation can be derived based on its segmental results for Indonesia:

1H26: Revenue~157.6mil, cost of inventories~96.5mil --> GPM~38.8%
1H25: Revenue~162mil, cost of inventories~96.2mil --> GPM~40.6%

Since 1H26 has a higher portion of Own Brand sales (88% of total sales) compared to 1H25 (76% of total sales), and with Own brands having ~10% higher GPM than Agency Brands, the impact of the sales mix ~ 10%*(88%-76%) = 1.2% GPM. As such 1H26 GPM (adjusted for sales mix) is 38.8-1.2% ~ 37.6%.

So there is about ~3% YoY reduction in GPM for 1H26, which is quite substantial. Mgt has explained it as been higher cost of raw materials + FX working against them (Delfi purchases cocoa butter/powder in USD while sells the chocolate in IDR).

1H26: https://links.sgx.com/FileOpen/1H%202026...eID=900372