Wilmar International - UOB Kay Hian 2015-10-28: 3Q15 Results Preview

Wilmar International - UOB Kay Hian 2015-10-28: 3Q15 Results Preview WILMAR INTERNATIONAL LIMITED F34.SI 

Wilmar International (WIL SP) 3Q15 Results Preview 

  • We are expecting 3Q15 net profit of US$300m-350m (+79%qoq, -19% yoy) after adjusting our 2015 net profit forecast down by 13% to US$1.12b. to reflect the lower palm & lauric sales volumes and sugar margins. 
  • Wilmar usually sees its best quarterly earnings in 3Q as sugar contributes to a bulk of its profit during the sugar milling season. Its China operations are expected to continue to do well in 3Q15. 
  • Maintain BUY. Target price: S$3.60. 


WHAT’S NEW 


 Earnings revision. 

  • We cut our net profit forecasts by 13%, 6% and 7% for 2015-17 respectively. The earnings cut is greater for 2015 to adjust for: 
    1. Tropical oil: Sales volume adjusted down. We have revised down our sales volume for 2015 to take into consideration lower biodiesel sales in Indonesia and exports. Biodiesel blending in Indonesia was stopped in Feb-Aug 15 due to the wider spread between Mean Of Platts (MOPS) and biodiesel price. This division will do well in 2016 as the biodiesel contracts will start to kick in and 2016 should see much higher blending volume from Pertamina. The new biodiesel pricing will be able to cover the cost of feedstock with its small margins as Wilmar’s operation is efficient under the fully-integrated downstream complex in Dumai, Indonesia. 
    2. Sugar: Sales volume adjusted higher, but lower margin. Sugar prices remain subdued and a lower import quota was allocated to Indonesia for 2015, which also affected sugar refining margins in Indonesia. However, the merchandising and processing volume should see strong growth based on the large sugar deliveries taken up by Wilmar recently. 

 3Q15 results preview: Expecting core net profit of US$300m-350m (vs 3Q14: US$429.7m, 2Q15: US$193.6m). 

  • Wilmar is scheduled to release its 3Q15 results on 11 Nov 15 after the market close. We are expecting a strong qoq earnings growth on positive contribution from the sugar division vs losses in 2Q15, higher contribution from the oilseeds & grains division on higher crushing margin and volume, and higher contribution from consumer pack as 3Q15 sales are usually higher due to festive demand. 
  • 3Q15 net profit is likely to be lower due to mark-to-market investment losses as equity markets were weaker than in 2Q15. 


EARNINGS REVISION/RISK 


 Earnings downward revision. 

  • We cut our net profit forecasts by 13%, 6% and 7% for 2015-17 respectively. The earnings cut is greater for 2015 to adjust for: 
    1. lower sales volume forecast for palm downstream in 2015 on lower biodiesel sales in Indonesia and exports, and 
    2. increased sugar merchandising and processing volumes but lower margins. 
  • We are now expecting EPS of 17.4 US cents, 20.7 US cents and 22.0 US cents for 2015- 17 respectively. 


VALUATION/RECOMMENDATION 


 Maintain BUY and SOTP-based target price of S$3.60. 

  • We roll forward valuation to 2016, assuming a 15x PE for its palm upstream, consumer pack and sugar divisions, 13x for its palm refining and soybean crushing and 10x for the rest of operations. 
  • Our target price translates into a blended PE of 12.4x 2016F PE (or its 5-year mean). 


SHARE PRICE CATALYST 

  • Consolidation of soybean crushers could lead to better margin. 
  • Weather-induced commodities price hike. 
  • Full implementation of the biodiesel mandates globally could lead to better demand for biodiesel. Wilmar is the world’s largest palm biodiesel producer.





Singapore Research Team UOB Kay Hian | http://research.uobkayhian.com/ 2015-10-28
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 3.60 Same 3.60


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