Look to 2014. Since Nutri-Asia of Philippines purchased an 85% stake in Del Monte Pacific (DPML) in 2006, it has been quietly diversifying its business streams and fixing a few legacy issues. In 2011, it renegotiated a previously loss-making supply contract, which resulted in the revival of its sales and earnings growth in Europe. We expect its next earnings boost to occur in 2014, as two more loss-making contracts come to an end.

Multiple growth drivers in place. While DPML has a strangle hold in its home market, the Philippines, with its Del Monte brand, it has been endeavouring to break into new markets with two pillars in place – S&W and FieldFresh. Due to regulatory limitations on the Del Monte brand, DPML has been grooming the S&W brand to break into new markets. At the same time, DPML is looking to replicate its home market success in India with its FieldFresh brand. DPML holds a 46% equity stake in FieldFresh; Bharti Group is the other stakeholder. However, FieldFresh is currently incurring losses due to high start-up fees in distribution outlets and fixed costs from a newly-opened plant. FieldFresh expects to break even by 2015 at the earliest.

Processed beverages to lead. DMPL has enjoyed healthy growth over the past two years. In particular, the Beverage segment has registered sales and operating profit growth of 26% and 487.8% YoY, respectively, in 2011. Main contributors to its performance were improved sales in the fruit juice segment and a jump in concentrate prices to new highs of USD2,000/tonne. Since then, concentrate prices has nearly halved to USD1,100-1,200/tonne. The Group has now shifted focus from concentrates to building new beverage brands, in order to reduce its risk in commodity prices.

Earnings growth coupled with dividend safeguard. While DPML has a minimum dividend payment policy of 33%, it has generously paid out 75% of its earnings over the past 7 years. It is currently trading at its historical FY11 P/E of 14.9x; with 9M12 earnings growth of 33.7% YoY. Its fourth quarter is typically the strongest, as larger shipments of pineapples will be made then.

Source: Maybank Kim Eng Research - 07 Dec 2012