Del Monte Pacif (DELM SP) BUY (Maintained)
1Q17 results: Slow But Steady Improvements.
Analyst: Nicholas Leow Tel: (65) 6590 6616
Company
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Share price(S$)
|
Recommendation
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Our Target Price(S$)
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Within Expectation (Y/N)
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Highlights of Results
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| Del Monte Pacific |
0.365
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BUY
| 0.47 |
In-line
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See attached comments
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DELM SP 1QFY17
- 1Q17 sales 3% lower. DELM's 1Q17 sales of US$465.5m was 3% lower than 1Q16 due to lower sales in the United States. The US subsidiary Del Monte Foods Inc accounted for about 75% of total group sales or US$350.9m which was 6% lower than 1Q16 due to continued impact of unbranded sales and unsuccessful low-margin US Department of Agriculture bids from the 2nd half of fy16. This was partially offset by higher sales from the Asia Pacific region. Asia Pacific sales were up 11.4%.
- EBITDA moving in the right direction. 1Q17 EBITDA of US$23.7m was 20% higher than 1Q16 due to lower operating expenses from savings from a restructuring program started in FY16.
- One-off expenses continue to persist. 1Q17 results included a one-off restructuring expense of US$4.9m which included closure of the North Carolina plant. Stripping out the one-off expenses recurring EBITDA would have been US$28.6m or 25% higher yoy.
- First quarter seasonally the weakest. DELM's 1Q is seasonally the weakest quarter accounting for about 20% of full year sales. Lower sales also reflect on profit performance where DELM historically incurs a loss in 1Q. Expect sales to peak in the 2nd or 3rd quarters due to Thanksgiving and Christmas festivities.
- Where are the perpetual preference shares? The group is still guiding for a CY16 launch of the preference shares. Initial tranche of up to US$250m and the balance issuable within three years which would bring the total to US$360m. Approvals have been secured from the Philippine SEC and Bangko Sentral ng Pilipinas (Central Bank).
- Guiding for a profitable FY17. The group is guiding for a profitable FY17 and will be exploring e-commerce opportunities for its products across selected markets.
- Valuation. We maintain our BUY recommendation with a PE-based target price of S$0.47/share (under reviews) pending a management meeting.
