- Initiate coverage: BUY for > 30% total return
- Consumer play with exposure to the Philippines, established Del Monte and growing S& W brands
- Rerating catalysts: better trading liquidity and continued earnings growth
- DCF-based TP of S$0.97, offering 3.3% yield
BUY, S$0.97 TP.
We initiate coverage of Del Monte Pacific (DMPL) with a BUY rating for > 30% total return. The stock presents an opportunity for investors to leverage on robust growth of the Philippines economy. We are projecting 25% earnings CAGR over FY12-15F.
Established brand in a young Philippines market.
Del Monte leads in the canned pineapple juice, tomato sauce/ ketchup and culinary segments in the Philippines, which is South-East Asia’s (SEA) second largest consumer market with a 93m population. The robust economic growth there is expected to spur consumption domestic sales accounted for 60% of DMPL’s FY12 revenue. It also has rights to the S& W brand in Asia Pacific.
Visible earnings growth drivers.
We project robust near and medium term earnings growth, supported by: (i) rising domestic sales driven by its branded products and larger distribution network (ii) continued growth of the S& W brand in the Asia Pacific region (iii) expiry / revision of long term supply contracts to lift margins in FY15F (iv) expiry of PET toll packing contract in 3Q14 and (v) cost savings from its waste-to-energy project.
Re-rating to continue, driven by earnings growth and better trading liquidity.