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Del Monte Pacific - DBS Research 2016-03-14: Turned profitable but below expectations

Del Monte Pacific - DBS Research 2016-03-14: Turned profitable but below expectations DEL MONTE PACIFIC LIMITED D03.SI 

Del Monte Pacific - Turned profitable but below expectations 

  • 3Q16 earnings below expectations 
  • US operations impacted by loss of government contract, higher expenses 
  • FY16F earnings revised up on one-off gains, but core profits lower 
  • Maintain HOLD, TP revised slightly up as we roll forward based on average of FY16F/17F 

Maintain HOLD; turning profitable but not as fast as envisaged. 

  • We maintain our HOLD recommendation on DMPL but with a higher TP of S$0.39 as we roll forward our valuations based on average of FY16F/17F earnings. 
  • While we expect DMPL to be on track to post an earnings turnaround in FY16F following two consecutive years of losses, the pace is not as fast as we previously envisaged. 

3Q16 profitable but below expectations. 

  • Headline profit stood at US$0.6m, while core profit was US$7.5m excluding nonrecurring items. Despite this, the results was below expectations due to slower sales registered from its US operations (DMFI) arising from loss of government and OEM co-pack contract bids (c.US$40m). As a result, sales from US declined by c.9% y-o-y to US$466m. 
  • DMPL’s Asia Pacific operations performed well, led by Philippines, which saw revenue improved by 11.6% in peso terms (or 6.4% in US terms). 
  • While 9M16 core profit of US$18.5m was an improvement from loss of US$23.9m last year, this was just at 50% of our original full year estimate. 

Pref shares on cards; forecasts revised to reflect coupon payments, one-off items. 

  • Management continues to focus on deleveraging the group’s balance sheet; and is looking to issue up to US$360m of preference shares with a target coupon rate of between 5.5% to 7%. 
  • Post 3Q16 results, we trimmed our revenue and EBITDA forecasts lower for the group, particularly dragged by DMFI. 

Valuation: 

  • Our target price is revised slightly higher to S$0.39, as we roll over to the average of FY16F/17F (from FY16F) based on 12x FY16F PE, which is at a 40% discount to consumer peers listed in the US and Philippines. 

Key Risks to Our View: 

  • Turnaround in performance. The main thesis of our recommendation is the turnaround of profit on the absence of non-recurring expenses and better operational performance. 
  • This is also contingent on sales, and in turn consumer sentiment and the broader economy. 




Alfie Yeo DBS Vickers | Andy Sim DBS Vickers | http://www.dbsvickers.com/ 2016-03-14
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 0.39 Up 0.35


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