Brokers' Call

DEL MONTE PACIFIC LIMITED

Broker: DBS Group Research

Call: Hold

Target price: 39 Singapore cents

Del Monte Pacific Limited is turning profitable but not as fast as envisaged.

DMPL is expected to be on track to post an earnings turnaround in financial year 2016 following two consecutive years of losses, but the pace is not as fast. The third quarter of 2016 was profitable but below expectations.

Headline profit stood at US$600,000 (S$815,200), while core profit was US$7.5 million, excluding non-recurring items. Despite this, the results were below expectations due to slower sales registered from its United States operations. As a result, sales from US declined by approximately 9 per cent year on year.

DMPL's Asia-Pacific operations performed well, led by the Philippines, which saw revenue improve by 11.6 per cent in peso terms. While the nine-month 2016 core profit of US$18.5 million was an improvement from loss of US$23.9 million last year, this was just at 50 per cent of the full year estimate. Management continues to focus on deleveraging the group's balance sheet and is looking to issue up to US$360 million of preference shares with a target coupon rate of between 5.5 per cent and 7 per cent.

ASIAPHOS LIMITED

Broker: NRA Capital

Call: Buy

Target price: 22 Singapore cents

Improved mine operations for AsiaPhos Limited (AP) are the explanation for the 117 per cent growth in yearly mine output over 2014 and 2015.

More importantly, AP is showing signs of self-sustainability with both upstream and downstream segments reporting positive gross margins for 2015.

The company offers a compelling de-risked investment case with a positive outlook, based on estimated phosphate rock output of at least 40 per cent this year and 35 per cent in 2017.

Total resources were largely unchanged year-on-year after mining depletion and data from the past two years of development and production give sufficient confidence for an upgrade of resources in the immediate vicinity of exploration and development work to reserves, including planned output from 2016 to 2018.

The company has invested resources in the second half of 2015 to upgrade various mine infrastructure to ensure it will receive approval for larger production scale. A 40 per cent increase in production in 2016 is forecast. Considering the above and other drivers, AP is expected to deliver higher operating profitability this year.

ASCOTT RESIDENT TRUST

Broker: OCBC Investment Research

Call: Buy

Target price: $1.29

Ascott Residence Trust has been growing its footprint in the United States. It announced its proposal to acquire a hotel known as Sheraton Tribeca New York Hotel located in Downtown Manhattan. The purchase consideration is US$158million, and marks ART's second acquisition in the US. The hotel comprises 369 guest rooms, has a current occupancy rate of more than 90 per cent, and delivered 7 per cent year-on-year growth in its revenue per available unit in 2015.

Separately, ART also announced that it has completed a private placement exercise, raising gross proceeds of approximately S$100 million. ART intends to use approximately S$98.5 million of the proceeds to fund the proposed hotel acquisition. The remaining acquisition amount will be financed with onshore US dollar debt.

Post-acquisition, ART's gearing would increase from 39.3 per cent (as at Dec 31, 2015) to 40.2 per cent.

Looking ahead, management has plans to increase its exposure to the US hospitality market by up to 20 per cent of its asset size.

TRENDLINES GROUP

Broker: DBS Group Research

Call: Buy

Target price: 28 cents

Trendlines' bid to renew its agtech incubator licence in Israel has been denied. The company's 85 per cent-owned subsidiary, Trendlines Agtech, last Tuesday received a notice from the Office of the Chief Scientist of the Israel Ministry of Economy that the licence to operate an incubator in the Judea and Samaria region of Israel has been awarded to a competitive bidder.

This is not a material loss. Trendlines management hopes to bundle agriculture technology investments with its medical technology licence, valid till 2023.

In the worst-case scenario of an agtech licence being denied, existing agtech portfolio companies will still continue to receive funding and only new agtech companies will be affected.

Trendlines will still have access to some funding programmes from the government for new companies which may be 40-50 per cent less than those that come with the agtech licence.

Given that medtech companies comprise an estimated 70-80 per cent of Trendlines portfolio value, this should not be a big concern.

A version of this article appeared in the print edition of The Straits Times on March 21, 2016, with the headline 'Brokers' Call'. Print Edition | Subscribe