Del Monte Pacific 2Q22 Results - Phillip Securities 2021-12-17: Strong Growth Momentum In The US

DEL MONTE PACIFIC LIMITED (SGX:D03)

Del Monte Pacific 2Q22 Results - Strong Growth Momentum In The US

Del Monte Pacific (SGX:D03)'s 2Q22 results exceeded expectations. 2Q22 revenue and PATMI at 29%/41% of our FY22 forecasts. Revenue from Americas exceeded expectations.
US subsidiary DMFI branded retail sales grew 11% y-o-y, with strong momentum from core vegetable business and shipments in preparation for holiday promotional activity.

DMPI international sales increased 18% y-o-y on robust sales of packaged fruit and beverages in US and Europe and S&W packaged pineapple and mixed fruit in North Asia.
Maintain BUY call on Del Monte Pacific with a higher target price of S$0.62 from S$0.60. Our FY22e PATMI has been raised slightly by 2% to US$88.2mil, as we increase our sales forecasts for Americas, but lower our sales forecasts for Asia Pacific, in line with lower revenue in 2Q22 from the Philippines, due to a high base from impact of the pandemic in 2Q21.

Branded retail sales grew 11% y-o-y, with strong momentum from core vegetable business and shipments in preparation for Thanksgiving holiday promotional activity. DMFI’s highest margin canned vegetable continues to hold the largest market share of 20.2% in its segment.
DMFI continued to expand distribution of new products launched, which contributed to 5.3% of DMFI’s total sales in 2Q22. Profitability increased with a better sales mix and price increases. Compared to April 2021, prices have increased about 10%. More consumers are turning to trusted brands like Del Monte for meal preparation options of better quality.

DMPI’s sales in the international market increased 18% y-o-y to US$69.7mil in 2Q22. This was driven by strong sales of packaged fruit and beverages in the USA and Europe, and S&W packaged pineapple and mixed fruit in North Asia. Sales of S&W packaged pineapple products in 2Q22 rose 58.4% y-o-y, but that of fresh pineapples declined by 17.2% y-o-y, due to lower supply attributed to timing of the harvest. This is expected for 2Q22 only.

In US dollar terms, 2Q22 sales in the Philippines decreased 5.8% y-o-y to US$100.2mil due to a high base in 2Q21. The packaged fruit and new products saw growth, which was offset by a reduction in culinary and beverage categories.

Del Monte Pacific’s share in the JV in India suffered a loss of US$0.5mil in 2Q22, compared with a US$0.2mil loss in 2Q21. B2B business and e-commerce sales grew, but were offset by the decline in fresh sales.

Del Monte Pacific has successfully priced an aggregate principal amount of US$90mil 3-year unrated Senior Notes with a fixed coupon rate of 3.75%, payable semi-annually. The Notes were priced with a yield of 4% at a reoffer price of 99.3%. Approval in-principle has been received for the listing of the Notes on the SGX-ST. This would be for the partial refinancing of the preference shares. A total of US$300mil of preference shares were listed in 2017 at fixed rate of 6.625% and 6.5% per annum for Series A-1 and A-2 respectively.
DMFI issued US$500mil of 11.875% Senior Secured Notes on 15 May 2020. They will mature on 15 May 2025 and are redeemable at option of DMFI beginning in May 2022. Interest paid under this loan in FY21 was US$29.7mil, accounting for 27% of total interest expense.
In October 2021, S&P Global Ratings raised the credit rating on DMFI to ‘B’ from ‘B-‘, and issue-level rating on its debt to ‘B’ from ‘B-‘. We expect DMFI to issue debt at a lower cost.

We have a higher target price of S$0.62 for Del Monte Pacific, up from S$0.60. We raise Del Monte Pacific's FY22e PATMI forecast slightly by 2%, to US$88.2mil. We raise sales forecasts for the Americas by 5% to US$1.62bn, but lower sales forecasts for Asia Pacific by 4% to US$690mil, in line with lower revenue in 2Q22 from the Philippines, due to a high base from impact of the pandemic in 2Q21.
Our target price for Del Monte Pacific remains pegged to 13x FY22e P/E, as we apply a 20% discount to the industry valuation which remained unchanged, due to comparatively higher leverage.
See

Vivian Ye Phillip Securities Research | https://www.stocksbnb.com/ 2021-12-17

SGX Stock Analyst Report BUY MAINTAIN BUY 0.62 UP 0.600