CIMB Securities 2015-08-06: Wilmar International - 2Q15 Results. Higher oilseeds and grains profit. Maintain HOLD.


Higher oilseeds and grains profit 

  • Although Wilmar’s 1H15 core net profit made up only 40% of our and 36% of consensus full-year forecasts, we deem the results to be in line as we expect a stronger 2H15, driven by positive sugar contributions and higher sales volumes. 
  • 1H core net profit jumped 21% yoy thanks to improved oilseeds crushing margins and contributions from consumer products segment. 
  • However, refining margins stayed weak and sugar posted higher losses. 
  • We maintain our earnings forecasts and SOP valuations (S$3.40)
  • Our Hold rating is intact as we see solid support for its share price given its low P/BV of 0.9x. 

Stronger oilseeds and grains profit lifts 1H15 earnings 

  • Wilmar’s 2Q15 core net profit rose 19% yoy as better performances from the oilseeds and grains as well as “other” segments trumped weaker contributions from the tropical oils and sugar divisions. 
  • In line with the better results, the group announced a 25% increase in its interim dividend to S$0.025. 
  • The key positives were 
    1. the continued improvement in its crush margins in China (due to lower import of soybeans into China by financial traders and lower soybean prices), 
    2. better consumer products margins (benefits from lower feedstock costs and higher sales volumes), and 
    3. higher contributions from the shipping and fertiliser businesses. 
  • These more than offset the weak refining margins due to overcapacity issues as well as lower sales volumes. 
  • Also, plantation earnings were weaker due to lower CPO prices and the sugar division posted higher losses due to weaker performances from its merchandising and manufacturing businesses and seasonal losses in milling. 

Outlook for 2H15 earnings 

  • Wilmar expects crush margins to remain positive for the rest of the year. 
  • It also projects the consumer products segment to continue its strong performance. 
  • However, it expects flattish refining margin due to higher palm oil output and demand in 2H. 
  • The group also indicated that its plantations and palm oil mills will be affected by the lower CPO price. 
  • Overall, the group is cautiously optimistic that its 2H performance will be satisfactory. 

Maintain Hold until strong catalysts emerge 

  • We maintain our Hold rating. Wilmar’s share price is supported by its attractive 0.9x FY15 P/BV. 
  • However, it lacks strong near-term catalysts due to the stiff competition in the refining business.

Ivy NG Lee Fang, CFA | CIMB Securities 2015-08-06
HOLD Maintain HOLD 3.40 Same 3.40