Del Monte

Del Monte: FY13 and 4Q13 results missed consensus. FY13 net profit halved to $16.1m, while top line climbed 7% to US$492.2m. 4Q13 swung to a net loss of US$1.7m, compared to a net profit of US$13.5m a year earlier, mainly due to a one-off transaction fee of US$22.7m related to the acquisition of US-based DMF. Adding back the one off fees, core net profit would have been US$13.2m (-2%), keeping pace with the 2% decline in turnover to $157.8m, dragged by weakness in the Philippines market. Del Monte’s gearing jumped 19 ppt to 65.7% due to the DMF acquisition; management will be beefing up its balance sheet subsequently through equity raising (ie. preference share and rights issues). Still, the street is likely to view this set of results as a non-event. Having completed the DMF acquisition on 18 Feb, investors will likely focus next on Del Monte’s integration of DMF. If successful, Del Monte’s sales is projected to quadruple to US$2b from FY15. Management guided while on a recurring basis 1Q14 earnings should be higher, the one-off transaction fees in the closing of the transaction will result in lower non-recurring net income. No final dividend declared as the Board maintains a prudent stance following its US acquisition. Given the “game changing” nature of the DMF acquisition, forward-looking valuations may be more appropriate. Using Maybank KE’s post-deal FY15e EPS of US4.3¢, Del Monte trades at 10.2x FY15e P/E at yesterday’s closing price of $0.61.