Wilmar International (WIL SP) - 4Q16 Within Expectation; Tropical Oils And Sugar Are Top Performers
- Wilmar reported a core net profit of US$590m for 4Q16 and US$977m for 2016. Excluding the tax benefit, results were within expectation.
- Its 2016 performance was supported by higher margins from tropical oils and higher sugar sales volume.
- 2017 should see all three divisions provide steady contributions on higher sales volumes. The strong rebound in share price suggests that the likely earnings recovery in 2017 has been factored in.
- Maintain SELL. Target price: S$3.50.
Results within expectations.
- Wilmar International (Wilmar) reported a core net profit of US$590m (+53.1% qoq, +70.1% yoy) for 4Q16 and US$976.6m (-14.1% yoy) for the full year of 2016.
- The reported core net profit is higher than our estimate of US$430m- 460m, mainly due to the recognition of an income tax benefit of US$23.3m in 4Q16 - arising from the tax incentive scheme introduced by Indonesia’s Ministry of Finance.
- Excluding the tax benefit, the group’s operational performance was within our expectations.
Tropical oils and sugar divisions registered better yoy performances in 2016.
- For 2016, the weak core net profit performance was mainly due to a weak oilseeds and grains division in 2Q16. This was partly offset by the better performances from tropical oils and sugar divisions where PBT increased 40.2% yoy and 48.7% yoy respectively in 2016.
Tropical oils division’s performance improved qoq and yoy in 4Q16.
- For 4Q16, this division’s PBT increased qoq and yoy, mainly supported by higher CPO prices and manufacturing sales volume as production recovered from 9M16. Despite lower yoy FFB production in 2016 due to the lagged impact from the drought, PBT increased 40.2% yoy thanks to higher CPO prices and a stable performance from the manufacturing business. Higher palm product selling prices boosted this division’s PBT margin to 4.1% for 2016 vs 3.1% in 2015.
Stable performance from oilseeds and grains division.
- This division reported weaker qoq results in 4Q16 due to lower qoq manufacturing sales volume. However, the yoy performance in terms of sales volume was stronger due to an increase in sales from consumer packs due to front-loading for Chinese New Year demand.
- For 2016, the oilseeds and grains division’s PBT plunged 63.6% yoy mainly due to the losses recognised in 2Q16.
Strong performance from sugar division.
- The sugar division reported a strong performance in 4Q16, mainly supported by higher milling volume and an increase in merchandising and processing sales volumes.
- For 2016, the 48.7% yoy growth in PBT was driven largely by higher PBT margin of 2.1% vs only 1.9% in 2015, thanks to the strong rally in sugar prices since late-15.
- Sugar division should deliver another good set of results in 2017, supported by the relatively firm sugar prices (trading around US$20/lb) while a recovery in production should spur sales volume.
Better performance from JVs and associates.
- Share of PBT from JVs and associates increased >100.0% qoq and 9.9% yoy in 4Q16 and 34.3% yoy in 2016, mainly due to stronger contributions from the investment in Goodman Fielder and China associates.
Proposed a final tax exempt dividend of S$0.04/share.
- Including the interim dividend of S$0.025/share, the total dividend paid and proposed for 2016 is S$0.065 per share (2015: S$0.08/share), representing a yield of 1.6%.
- We maintain our earnings forecasts for 2017-18 pending an analyst briefing.
- We are expecting an EPS of 20.6 US cents and 21.6 US cents for 2017 and 2018 respectively.
- Maintain SELL and SOTP-based target price of S$3.50. This translates into 12.1x blended 2017F PE, which is close to its 5-year mean (1-year forward PE of 12.5x).
- 2017 should see all three divisions show steady contributions from higher sales volumes. The strong rebound in share prices could have factored in the earnings recovery for 2017.
SHARE PRICE CATALYST
- Stronger-than-expected earnings growth.