Del Monte Pacific

DBS Group Research, June 18

AFTER Del Monte Pacific (DMPL) reported its results for the transition period January-April 2014 and change of its full-year end to April, we revised our forecasts and the consolidation of recently acquired Del Monte Food Inc (DMFI).

We project that FY15F will still register losses of about US$40 million, including preference share dividends) from the US$43 million loss registered for January-April 2014, before jumping to a net profit of US$50 million in FY16F, as DMFI targets a reversion to its historical performance trend (sales revenue of US$1.8 billion).

DMPL is looking to issue preference shares (to raise US$350 million) within the next six months, subject to Philippine authorities' regulatory approvals. A further US$180 million is to be financed by new common shares/rights issue, while US$100 million will be financed by medium-term loans.

We have assumed a 10-for-4 rights shares to raise US$180 million. Following the exercise, we estimate that net debt to equity should drop to 1.8 times and 1.6 times by end FY15F/16F respectively.

While we see the longer-term stability and potential of the enlarged entity, we expect a meaningful turnaround only in FY16F. Our target price is revised to S$0.62, based on 18 times FY16F earnings from a discounted cash flow-based methodology previously.

At this juncture, we believe the upside to its share price could be limited in the near term, and the counter could appeal instead to investors with mid- to longer-term horizons. Downgrade to "hold".

HOLD