Wilmar International - CIMB Research 2016-12-05: Asia's leading agribusiness group

WILMAR INTERNATIONAL LIMITED F34.SI

Wilmar International - Asia’s leading agribusiness group

The operating environment of the oilseeds crushing business in China has improved, which could lead to better 2017 earnings for the group.
Its tropical oils division could also benefit from higher volumes and CPO prices.
Maintain Hold due to lack of strong catalysts.

Wilmar posted a strong core net profit of US$385m in 3Q16, against its first quarterly net loss of US$220m in 2Q16. The good 3Q results were driven by better performance from the tropical oils segment and a significant recovery in its oilseeds and grains operations from 2Q.
The group’s 9M16 core net profit fell 53% yoy due to losses incurred by its oilseeds and grains division in 2Q16 and weaker contribution from its sugar division.

Wilmar revealed that it has revalued some of its plantation and processing assets in Indonesia to take advantage of the lower 3% tax rate on revaluation gains, down from 10%.
This exercise will allow Wilmar to benefit from lower income taxes and book in some deferred tax income upfront. It expects to book some of these benefits in 4Q and has indicated that this could be significant.
We have not imputed the expected tax credit in 4Q16 into our projected 25% effective tax rate for FY16, down from 33% in 9M16.

We gather that the operating environment for the oilseed crushing business in China has improved following the merger of Chinatex and COFCO. The tropical oils business will do better as palm oil supply recovers from the El Nino effect and CPO prices increase.

The sugar division is expected to perform better in 4Q16 due to higher sugar sales volume and prices. We gather that heavy rain in 3Q delayed sugar harvesting activities in Australia to 4Q16. The consumer products business continues to flourish in the rice and flour segments in China.
The group is registering strong growth for its consumer products business in India, Vietnam, Indonesia and Africa.

We project that Wilmar will deliver stronger earnings in FY17, driven by higher contributions from tropical oils, oilseeds and grains, as well as sugar. The group’s tropical oils division is likely to benefit from higher CPO selling prices and biodiesel sales volumes while the sugar division may benefit from stronger sugar prices.
We expect the oilseeds and grains business to gain from higher crushing margins and the group’s expansion into the consumer products business in order to raise the value added.

We believe the stock is well supported at 1.03x FY16 P/BV but it lacks strong catalysts.
We continue to advocate a Hold rating and would turn more positive on the stock if we see more significant earnings contribution from its expansion into consumer products in recent years.
Our SOP-based target price (S$3.42) is intact.

Ivy NG Lee Fang CFA CIMB Research | http://research.itradecimb.com/ 2016-12-05

CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 3.420 Same 3.420