STEADYING THE SHIP
Navigating volatility.
- China’s decelerating economic growth means that Wilmar is focused on expanding margins within its product portfolio.
- Being one of the largest integrated Agribusiness companies, Wilmar should benefit from stable commodity prices, diversified business model and risk management.
- Over the long term, we expect Wilmar to gradually extend penetration of well-established brands through its vast existing distribution networks.
Forecasts tweaked 0-1% on changes in segment reporting.
- We adjusted our forecasts slightly to impute changes in Wilmar’s segment reporting this year.
- Based on our revised estimates, we expect 2Q15 earnings to come in between US$250m and US$272m (+53-67% y-o-y). This is driven by continued strength in soybean crush margins, offset by sequential weakness in palm oil prices and refining margins.
- Sugar segment is expected to report seasonal loss – though smaller than 1Q15.
Key beneficiary of Indonesia’s B15 programme.
- Starting 16 Jul15, Indonesia began charging levies for exports of various palm oil products with differentiated rates.
- The consequential drop in domestic prices translates into lower feedstock prices for Wilmar – which buys most of its CPO requirements.
- Equipped with the largest biodiesel capacity in Indonesia, Wilmar should likewise produce biodiesel profitably with subsidies collected from export levies.
- With reduced participation of financial traders, we believe the catalyst for Wilmar lies in stronger prospective 2H15 earnings.
Valuation:
- We employed DCF methodology (WACC 6.2%, TG 3%) to arrive at our TP of S$4.05 for Wilmar (unchanged).
- Our BUY call is reiterated for 26% upside.
- We believe reduced volatility and steady growth in prospective earnings should move Wilmar’s forward PE closer to its average of 15.1x from 12.9x currently (close to -1SD).
Key Risks to Our View:
- Our call is premised on continued implementation of Indonesia’s B15 policy. Changes or delays to this policy would affect our estimates.
- As Wilmar is an index component, changes in its weightings would also make it vulnerable to swings significantly above or below our price target.
(Ben SANTOSO)
Source: http://www.dbsvickers.com/
