SINGAPORE (March 13): DBS Group Research is advising investors "hold" on to Del Monte Pacific (DMPL) given sub-par operations in its US business coupled with plus high gearing.
In 3Q17, DMPL’s core earnings came within expectations, helped by tax credits.
Headline net profit was at US$8.5 million ($12 million), reversing from the loss of US$4.8m last year.
Group revenue improved by 0.3% to US$604 million, helped by Asia Pacific operations.
EBIT was up by 92% to US$28.4 million.
In 3Q16, there was a one-off expense amounting to US$12.4 million. Excluding that, recurring EBIT would have grown by 25% on-year.
“Still, the recurring operating profit was behind our expectations largely arising from a weaker-than-expected performance from its US operations,” says lead analyst Andy Sim in a Monday report.
Meantime, DMPL’s planned issuance of an initial US$250 million tranche of perpetual preference shares has received approval from the relevant authorities.
The launch is expected to be in this month or next.
DBS has thus factored US$250 million in its FY18 forecasts instead of FY17 and estimated this to lower the group’s gearing to 2.2x by end FY18.
“Our target price is revised marginally to 36 cents based on 12x FY18 PE. This is at a 40% discount to consumer peers listed in the US and Philippines, given its higher gearing and uncertainty on the pace of its growth, particularly for its US operations,” says Sim.
Shares of DMPL are trading flat at 34 cents.
