Del Monte Pacific (DELM SP) - DBS Research 2017-06-28: JVs Signed With Fresh Del Monte Produce

Del Monte Pacific (DELM SP) - DBS Vickers 2017-06-28: JVs Signed With Fresh Del Monte Produce DEL MONTE PACIFIC LIMITED D03.SI

Del Monte Pacific (DELM SP) - JVs Signed With Fresh Del Monte Produce

  • Del Monte Pacific Limited enters into several JVs with Fresh Del Monte Produce.
  • To expand refrigerated product offerings, amongst others.
  • Positive development but limited near term contribution.
  • 4Q17 results to be announced tomorrow evening.

What’s New 

  • Del Monte Pacific Limited (DMPL) announced that it has entered into a series of joint ventures with Fresh Del Monte Produce Inc. (FDMP) to expand its refrigerated offerings across all distribution and sales channels, and to develop a new retail food and beverage concept. This F&B concept will be modelled after Fresh Del Monte Produce’s business in the Middle East.
  • The initiative will focus on the US market, and subsequent expansion into other territories in which the companies’ businesses complement each other. The full and final settlement of all active litigation between Del Monte Pacific Limited including its subsidiary, Del Monte Foods Inc (DMFI), and Fresh Del Monte Produce Inc has also helped to facilitate the formation of the JVs.

Our views 

A positive move but limited near term contribution. 

  • There was scarce detailed information shared in the joint conference call announcing the JVs, citing the formalization of business plans. Pending further details, our initial take is that contributions from the new JVs are likely to be limited for DMPL in the near term. 
  • Over the longer term, this could be positive for DMFI in its expanded product offerings, and help to mitigate declining sales in the canned food category. 
  • With the JVs, we believe this could help in removing overhang for products such as refrigerated fruit/ snack cups which borders along the interpretation on whether it is fresh or packaged.

Settlement of active litigation is positive. 

  • The full and final settlement of active litigation is positive in terms of cost savings.
  • We retain our HOLD recommendation and S$0.36 TP for now. DMPL is due to announce its FYE Apr 17 results tomorrow evening (29 June 2017). 
  • The key catalyst to Del Monte Pacific's share price, in our view, is the turnaround in sales and contribution from its US operations, which was still absent from last quarter’s results.
  • Our last note is can be accessed via the link. Del Monte Pacific: US operations still not up to par

Andy Sim CFA DBS Vickers | Alfie Yeo DBS Vickers | 2017-06-28
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