Wilmar International (WIL SP) - UOB Kay Hian 2016-11-11: 3Q16 Results In Line With Expectations

Wilmar International (WIL SP) - UOB Kay Hian 2016-11-11: 3Q16 Results In Line With Expectations WILMAR INTERNATIONAL LIMITED F34.SI

Wilmar International (WIL SP) - 3Q16 Results In Line With Expectations

  • Wilmar’s 3Q16 results were within expectations, supported by a turnaround in the oilseeds & grains division and better qoq performance from the sugar division. This partly mitigated the drag from the weak tropical oils division. 
  • Our net profit estimate of US$899m for 2016 might be too optimistic as tropical oils’ margin is likely to stay weak and the sugar division's performance is expected to be poor. We could cut net profit estimate by 10-15% post results briefing. 
  • Maintain SELL. Target price: S$3.05.


RESULTS


Results within expectations. 

  • Wilmar International (Wilmar) reported 3Q16 core net profit of US$385m (2Q16: core net loss of US$220m, +9.8% yoy), within expectations.
  • 9M16 core net profit was US$387m (-51.0% yoy). The satisfactory results were supported by: − The oilseeds and grains segment swinging back to register a pre-tax profit (PBT) of US$248m in 3Q16 (2Q16: US$344m loss), as expected; − The sugar division also reported PBT of US$86m in 3Q16 (2Q16: US$79m loss).
  • This partly mitigated the weaker qoq performance from the tropical oils division which suffered from lower margins due to its Indonesia’s downstream operations competing for feedstock by offering better prices for CPO.


STOCK IMPACT


Tropical oils: Downstream qoq margin squeezed. 

  • Performance was below expectation. The division’s PBT decreased 9.1% qoq to US$169m (+80.7% yoy) in 3Q16 due to lacklustre performance from downstream operations. 
  • Pre-tax margin was squeezed to 3.9% (2Q16: 4.5%) as its Indonesia’s downstream operations competed to get feedstock by offering better prices for CPO. Nevertheless, overall performance improved yoy with 9M16 PBT for 9M16 growing 27.3% yoy to US$505m, mainly due to improved CPO prices.

Oilseeds & grains: Significant recovery. 

  • The division turned around to record a strong PBT of US$248 in 3Q16 on the back of higher sales volumes for both consumer product and manufacturing businesses. For 9M16, PBT dived due mainly to the untimely purchases of soybeans in a highly volatile market in 2Q16.

Sugar: Improved qoq but weak yoy performance. 

  • Sugar operations usually record net profit in 3Q. However, in 3Q16, this division’s PBT fell 20.6% yoy, mainly due to delays in harvesting on poor weather in Australia. 
  • Together with the poor performance in 1H16, the division registered a pre-tax loss of US$11m in 9M16. Due to the delays in harvesting, sugar milling and crushing will continue into late-4Q16 and this should translate into better 4Q16 earnings vs 4Q15.

JVs and associates: Stable performance. 

  • JV and associates recorded a positive contribution of US$29m (-10.6% qoq, +94.1% yoy) mainly due to better performances from China, Afrika and Ukraine.


EARNINGS REVISION/RISK


10-15% downside risk to our current 2016 earnings forecast. 

  • Our net profit estimate of US$899m for 2016 might be too optimistic. 9M16 core net profit of US$387m accounts for only 43.2% of our full-year estimate.

No change to our earnings forecasts, pending guidance for 4Q16. 

  • We forecast EPS of 14.0 US cents, 19.2 US cents and 19.6 US cents for 2016-18 respectively, pending the outlook guidance from management at the results briefing later today.


VALUATION/RECOMMENDATION

  • Maintain SELL and SOTP-based target price of S$3.05. This translates into 11.5x blended 2017F PE (5-year mean 1-forward PE: 12.5x). 
  • Although earnings could improve in the subsequent quarters, regaining investors’ confidence might take longer now.


SHARE PRICE CATALYST


Less volatile earnings. 

  • Wilmar is now focusing on expanding its consumer packs business to have it stand as a more stable earnings contributor. This is progressing well but it will still take a few years for Wilmar to see a more significant contribution from this segment.




Singapore Research Team UOB Kay Hian | http://research.uobkayhian.com/ 2016-11-11
UOB Kay Hian SGX Stock Analyst Report SELL Maintain SELL 3.050 Same 3.050




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