Wilmar International - DBS Research 2017-02-21: On the rebound

Wilmar International - DBS Vickers 2017-02-21: On the rebound WILMAR INTERNATIONAL LIMITED F34.SI

Wilmar International - On the rebound

  • 4Q16 core earnings of US$447m (+70% y-o-y; +16% q-o-q) – slightly below our expectations.
  • Sequential recovery driven by Tropical Oils, Sugar, Associates, offset by decline in Oilseeds & Grains.
  • FY17F earnings unchanged, FY18F earnings tweaked by 1%.
  • HOLD rating and S$3.90 TP maintained.



Navigating volatility. 

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


4Q16 core earnings slightly below. 

  • Core 4Q16 earnings came in at US$447.4m (+70% y-o-y; +16% q-o-q). 
  • Both Tropical Oils’ and Oilseeds & Grains’ pretax were slightly below our forecasts, although this was partly offset by better-than-expected contribution from associates. 
  • We adjusted FY17F Tropical Oils margins slightly higher to 4.5% from 3.8% to account for higher Plantations contribution; but tweaked Oilseeds & Grains pretax margin lower to 2.9% from 3.0% on weaker-than-expected 4Q16 performance. 
  • FY17F Sugar segment’s pretax margin was also reduced slightly to 2.7% from 2.8% on lower sugar selling prices. 
  • Reflecting the above, FY17F earnings were unchanged, while FY18F earnings was raised by a marginal 1%.


Lacking catalysts. 

  • We do not anticipate any catalysts that would move the stock significantly higher in the near term. We believe the sequential recovery in 4Q16 earnings has already been priced in. 
  • With a greater presence in India (through AdaniWilmar’s proposed JV with Ruchi), and gradual penetration of well-established brands – including Goodman Fielder – in China, Wilmar’s FY16-19F earnings are expected to expand at c.8% CAGR (low-base effect).


Valuation

  • We employed DCF methodology (FY17F base year) to arrive at our TP of S$3.90 (WACC 7%, TG 3%) – unchanged. 
  • Our TP offers no upside from current level (except for 2.4% dividend yield).


Key Risks to Our View

  • Wilmar’s share price is influenced by palm oil refining/soybean crushing margins on top of crude palm oil (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 metric tonnes) 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/ 2017-02-21
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 3.900 Same 3.900



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