Del Monte

Del Monte: Phillip revises TP to $0.665, downgrades to "Accumulate", based on an updated PE valuation of 19x FY16F EPS, and adjusting for larger than expected dilution effects and preference dividends to be paid. Further equity financing remains in the pipelines, with US$180m to be raised through rights issue and another US$350m be raised through preference shares. Separately, Del Monte reported results for Jan-Apr 14 period, following a shift in fiscal year. Excluding sales from DMFI, revenue was lower at US$86.2m due to lower sales in the Philippines, due to oversold inventories to the general trade accounts in 4QCY13, leading to sales reduction. However, its S&W business continues to grow and deliver strong results. Due to the acquisition, the group booked non-recurring expenses (NRE) of US$29m net of tax, which resulted from higher fixed costs recognised for the 4-mth period and upward revaluation of inventory, corresponding to higher CGS. Including the one-off acquisition-related expense of US$6.2 and financing costs from the bridge loans, total NRE would have been US$46.6m net of tax for the period. Going forward, management seeks to drive sales growth and better margins in DMFI through several initiatives. These include: 1) ramp-up trade promotions and cut-down on TV adverts, 2) Change to more prominent product labels on retail shelves, 3) Reducing product prices towards pre-acquisition pricing level before FY11, 4) IT system migration to SAP for better productivity and costs savings. Phillip expects FY15 to be a transition year with significant restructuring in DMFI, and expects a return to normal profitability beginning FY16.