Background: Del Monte Pacific Limited (DMPL) is a manufacturer and distributor of food and beverage products. It owns the Del Monte brand in the Philippines and the Indian subcontinent. It has a 23,000ha pineapple plantation and a 700,000-ton capacity processing facility in the Philippines. DMPL also owns the S&W brand in several geographies worldwide.
Recent development: 1H11 net profit swung into positive territory at $6.6m, compared to a net loss of $2.2m a year ago. DMPL also guided for a better 2H11 performance on the back of higher pineapple production, better productivity and efficiencies, and active cost management.
Key ratios…
Price-to-earnings: 25.0x
Price-to-NTA: 3.6x
Dividend per share / yield: US$0.011/3%
Net cash/(debt) per share: (US$0.088)/(S$0.108)
Net gearing: 24.1%
Share price S$0.45
Issued shares (m) 1,081.781
Market cap (S$m) 486.80
Free float (%) 13.5%
Recent fundraising activities Nil
Financial YE 31 Dec
Major shareholders NutriAsia Pacific (78.5%); Lee Pineapple Co (8.0%)
YTD change +2.27%
52-wk price range S$0.370-0.585
Our view
Encouraging international sales growth. DMPL registered strong export sales to the Asia-Pacific region, as well as higher sales in Europe due to higher volume and pricing in 1H11. Its S&W brand is also growing with particularly strong sales in South Korea and China. Sales mix is now more internationally diversified.
A second go at a turnaround. When DMPL was acquired by NutriAsia Pacific in 2006, the new management set out to turn around the company by improving supply contracts, increasing its product range and expanding beyond the Philippines. In 2009, however, it was hit by the financial crisis and supply shortages, resulting in weaker performance in the past two years. Nevertheless, we think management has delivered in terms of improving DMPL’s business operations with better sales mix and efficiency. The improving performance could be early signs of a real turnaround this time round.
Margins continue to expand. We see overall gross margin expansion (23.0% for 1H11 against 18.1% for 1H10), attributed to improved pricing, better sales mix and lower cost. This trend is likely to persist if sales continue to grow in a favourable mix. FY10 PER stands at 25x while trailing 12-month PER is at 15.7x. With improved FY11 earnings, valuation multiple would come down but would still not be at an attractive level yet, in our opinion.
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