SINGAPORE (March 15): CIMB is putting Del Monte Pacific (DMPL) on “hold” given weak nine-month earnings amid tough business conditions for its US division.
For 9M17, net profit came in below expectations at 59% of CIMB’s full-year forecast.
During the quarter, the company incurred one-off expenses of US$12.4 million ($17.5 million) related to its US business Del Monte Food Industries (DMFI).
DMFI which accounted for 75% of group revenue in 3Q17 saw sales decline 2.3% y-o-y due to weakness in the canned fruit industry and lower sales to private labels.
Gross margin was also lower at 14.7% versus 15.5% a year ago.
In contrast, DMPL’s business is still in the pink of health, registering sales growth of 3.2% y-o-y in 3Q17.
S&W continued to make inroads with double-digit sales growth in the Asia Pacific region, driven by fresh pineapple and packaged products.
Meanwhile, Del Monte’s proposed preference share issuance of up to US$360 million has been postponed again to 2QCY17.
Depending on demand, management guided for an initial tranche of US$250 million.
We deem the coupon cost that the group could be comfortable with at 6.5-7.0%.
“Based on P/E multiple of 11.3x or 1 s.d. below the historical average of US peers, our target price is $0.35” says CIMB.
Shares of DMPL are trading at 34 cents.
