Wilmar International - DBS Research 2016-11-14: Strong earnings recovery priced in

Wilmar International - DBS Vickers 2016-11-14: Strong earnings recovery priced in WILMAR INTERNATIONAL LIMITED F34.SI

Wilmar International - Strong earnings recovery priced in

  • 3Q16 core earnings of US$384.9m ahead of our expectations.
  • Sequential recovery driven by Oilseeds & Grains, seasonal Sugar contribution, Shipping & Fertiliser and Associates.
  • 4Q16 earnings outlook expected to remain favourable.
  • HOLD rating and TP maintained.


Navigating volatility. 

  • China’s decelerating economic growth means that Wilmar is focused on expanding margins within its product portfolio. Over the long term, we expect Wilmar to gradually extend penetration of well-established brands through its vast existing distribution networks in Asia’s growing markets.
  • In this report, we reiterate our HOLD call on the counter.


3Q16 core earnings ahead of our expectations. 

  • Core 3Q16 earnings of US$384.9m (+10% y-o-y against restated US$350.4m) were better than the US$258m-US$291m range we had projected. This brought the group’s core 9M16 earnings to US$387.1m – representing 46%/43% of our/consensus full-year targets. 
  • We expect the group’s oilseed crushing sub-segment pretax to remain firm in 4Q16 – backed by record US harvests. Wilmar’s 4Q16 Tropical Oils segment pretax contribution should likewise sequentially improve on the back of both higher ASP and volume. 
  • Given delayed harvesting in 3Q16; we also expect part of sugar seasonal pretax peak to spill over into 4Q16.


Lacking catalysts. 

  • We do not anticipate catalysts that would move the stock significantly higher in the near term. We believe the sequential recovery in 3Q16 earnings is already priced in.
  • Notwithstanding continued biodiesel allocation in Indonesia; expansion of India presence (through Adani-Wilmar’s proposed JV with Ruchi); and gradual penetration of well-established brands – including that of Goodman Fielder – in China; Wilmar’s FY16F-19F earnings are expected to expand at a c.11% CAGR (low-base effect).


Valuation

  • We employed DCF methodology (FY17F base year) to arrive at our TP of S$3.39 (WACC 7%, TG 3%) – offering 1% potential upside to our revised TP.


Key Risks to Our View

  • Wilmar’s share price is influenced by palm oil refining/soybean crushing margins on top of CPO/sugar price expectations.
  • There would be downside risk to our CPO price forecasts if Pertamina’s biodiesel offtake fails to live up to our expectations (3.7m MT) next year. As Wilmar is an index component, changes in its weightings would also make it vulnerable to swings significantly above or below our TP.




Ben Santoso DBS Vickers | http://www.dbsvickers.com/ 2016-11-14
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 3.390 Same 3.390




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