Brokers' take: Phillip raises Del Monte target price to S$0.63 on higher Patmi, lower expenses

PHILLIP Securities Research raised its target price on canned food brand Del Monte Pacific D03 to S$0.63 from S$0.62, after raising its forecasts on the company's profit after tax and minority interests (Patmi) for FY2022 by 7.5 per cent.

In a report on Tuesday (Mar 15), research analyst Vivian Ye expects operating and interest expenses will likely be lower for the rest of its fiscal year, which is in line with trends for its first 9 months ended January.

The analyst had a "buy" call on the counter. The target price is pegged to 12 times the brokerage's estimates for Del Monte's FY2022 price to earnings ratio, down from 13 times.

Shares of Del Monte were down S$0.005 or 1.4 per cent to S$0.35 as at 2.37 pm on Tuesday.

The company posted earnings of US$25.9 million for the third fiscal quarter ended January, down 14 per cent from net profit of US$30.2 million in the same period a year ago, while net profit for the 9-month period was up 64.2 per cent on year to US$80.1 million.

Revenue for the quarter was up 4.9 per cent to US$659.4 million, which the group attributed to higher sales in the United States across almost all major categories, as well as higher exports of S&W branded premium fresh pineapples.

Ye said the results had exceeded the brokerage's expectations on revenue and Patmi, with revenue from the Americas, from its US subsidiary Del Monte Foods Inc (DMFI), beating the brokerage's forecasts.

She, however, noted that gross profit was lower than expected due to inflationary pressures. Del Monte recorded an 8 per cent increase in cost of sales for the quarter to US$496.2 million, which resulted in gross profit falling 3.4 per cent to US$163.2 million.

Higher manufacturing costs driven by commodity headwinds, weather-related events and freight headwinds, particularly ocean freight on co-pack products, had "more than offset" higher sales at DMFI, Ye said.

Nevertheless, she expects this dip in margins would be temporary.

Additionally, the analyst said the company is improving its cost of debt in the long term, and expects DMFI will issue debt at a lower cost. This comes after S&P Global Ratings raised its credit rating on DMFI and issue-level rating on its debt, while Moody's upgraded DMFI's corporate family rating.

READ MORE:

• Del Monte to raise product prices by 6-7% to counter inflationary pressures
• Del Monte mulls IPO of US subsidiary; eyes higher net profit for FY22