UOB Kay Hian 2015-08-06: Wilmar International - 2Q15: Seasonally Weak Quarter. Maintain BUY.


2Q15: Seasonally Weak Quarter 

  • Wilmar reported a core net profit US$194m in 2Q15, lower than our expectation of at least US$230m due to weaker-than-expected performances from: 
    1. the tropical oils division on weaker sales volume, and 
    2. the oilseeds and grains division on low margins. 
  • 1H15 net profit is one-third of our and 36% of consensus full-year net profit forecasts, but this is the norm for Wilmar as sugar operations usually turn profitable in the second half of the year. 
  • Maintain BUY. Target price: S$3.65. 


 Results below expectations. 

  • Wilmar reported 2Q15 core net profit of US$194m (-26.5% qoq, +18.7% yoy) and 1H15 core net profit of US$457m (+21% yoy). 2Q15 net profit came in below our expectation of at least US$230m due to: 
    1. Weak contribution from tropical oils division (56% of 1H15 PBT). This was mainly due to flat sales volume in 2Q15 vs our expectation of a growth. Pre-tax margin from this division improved yoy and qoq to 4.5% (2Q14: 3.9%, 1Q15: 3.9%), likely to come from better refining margins as guided by management during the previous briefing. 
    2. Lower-than-expected pre-tax margin in oilseeds and grains division (48% of 1H15 PBT). The slight disappointment could be due to our high expectation on consumer margins. Despite the miss, this division made a strong turnaround vs 1H14, which was affected by very low crushing margins. 
  • Sales volume were up in 2Q15 (+8.7% qoq, +14.4% yoy) with a lower margin of US$16.8/tonne (-35.8% qoq, + 144.2% yoy). We think the low margin came mainly from consumer products as more discount/offers were given to encourage sales during the low season. 
  • Wilmar declared an interim dividend of S$0.025/share (1H14: S$0.02), payable on 26 Aug 15. 


 Palm upstream reported better production. 

  • FFB production grew 20.3% qoq (+2.7% yoy) in 2Q15 on FFB yield improving to 5.5 tonnes/ha (2Q14: 5.3 tonnes/ha), attributable to larger young mature areas (50.7% of total planted vs 45.7% as at end-Dec 14). 
  • Oil extraction rate (OER) for 2Q15 was lower at 20.3% (2Q14: 20.4%) due to higher intake of third-party FFB. For 1H15, total FFB production was still down 3% yoy due to a higher base in 1Q14 as the high crops pattern shifted back in late-13 into 1Q14. 
  • Revenue contribution decreased 26.5% yoy in 2Q15 (1H15: -23% yoy) due to lower CPO prices. 

 Loss in sugar division was within expectation. 

  • The loss in 2Q15 was narrower qoq as the crushing season has started and there were much higher sales volume from merchandising & processing. 
  • 2Q15 and 1H15 losses were wider yoy as margins were affected by lower sugar prices. 
  • Sales volume for sugar merchandising & processing posted very strong growth of 45.8% yoy and 14.8% qoq in 2Q15 (1H15: +37.2% yoy). 
  • Contribution from the sugar division usually comes in 2H when harvesting activities start. However, this year’s performance will be highly dependent on sugar merchandising & processing as the sugar milling business is affected by both lower sugar prices and potentially lower production volume in 2015 due to the unfavourable weather in Queensland, Australia. 

 Associates in the red. 

  • Associates recorded a US$10.3m loss (1Q15: US$39.2m profit; 2Q14: US$4.0m loss), mainly due to losses from sugar operation in India and partially offset by higher contributions from associates in China. 
  • However, its others division recorded pre-tax profit of US$31.9m in 2Q15 (+45.9% qoq, +83.9% yoy) on stronger contributions from both shipping and fertiliser businesses and higher investment gains. 


  • No change to our earnings forecasts. 


  • Maintain BUY and target price of S$3.65, derived from SOTP valuation and translates into a blended 2015F PE of 12.6x. 
  • Wilmar is a clear beneficiary of low commodity prices and the new Indonesian regulation, which favours downstream players. 


  • Sustainable earnings stability will rebuild investors’ confidence in Wilmar and they will then invest for its long-term growth. 
  • A strong turning point in the Chinese soybean crushing market brought about by increased utilisation¸ which will deliver sustainable margins.

Chan Yuan She | http://research.uobkayhian.com/ UOB Kay Hian 2015-08-06
BUY Maintain BUY 3.65 Same 3.65