Muted 2Q13 headline numbers not a concern. Despite muted headline numbers, DMPL’s recent 2Q13 results were positive and we remain of the view that growth trends are affirmative and structural margin improvements forthcoming. During the quarter, revenue grew 11% yoy and net profit of USD6.1m eked out a 2% yoy growth.

Expect stronger growth trend for branded consumer segment. One curiosity was the mere 8% yoy growth for this segment, following more than six quarters of consistent double-digit growth, and conducive consumer spending in its main market, Philippines. We believe this is a temporary blip linked to logistics issues and remain comfortable with our expectation of 17% segment revenue growth for the full-year.

S&W resumes growth after ironing out distributor issues. Outside of the Philippines, S&W resumed double-digit growth after ironing out distributorship problems in Middle East, which partly contributed to the poor showing last quarter. Fresh fruits sold under this label grew 22% yoy, which is an encouraging trend given this sub-sector has the highest margins across all its business units. Plans to launch new product offerings for 2H13 both for Del Monte Philippines and S&W may provide additional impetus to growth.

Profit growth hindered by non-operating expenses. Net profit growth of 2% yoy was weighed down by one-off listing fees incurred from its recent PSE dual-listing as well as forex losses. Current debt profile, where there are more USD loans results is unfavorable in the environment of USD appreciation against mainly Peso-denominated revenue. Management is in the process of changing this mix to reflect a more natural hedge. Operating profit was up 12% yoy.

Maintain BUY. We make minor upward adjustments to our estimates and corresponding increase our TP to SGD1.05, still pegged to 25x FY14F. This is justified by a 22% 3-year net profit CAGR profile. Share price has increased 17% since our initiation in July, but we still see more than 20% upside from here. PSE-dual listing has almost doubled trading liquidity, which is supportive of upward re-rating for the stock.

Source: Maybank Kim Eng Research - 19 Aug 2013