Wilmar International - CIMB Research 2015-11-11: Lower tropical oils’ earnings hurt 3Q results

Wilmar International - CIMB Research 2015-11-11: Lower tropical oils’ earnings hurt 3Q results WILMAR INTERNATIONAL LIMITED F34.SI 

Wilmar International - Lower tropical oils’ earnings hurt 3Q results 

  • 9M15’s core net profit below due to weaker earnings from tropical oils segment. 
  • Oilseeds and grains business delivered its best quarterly earnings in 3Q15. 
  • Tropical oils’ earnings slumped due to lower CPO price and refining margins. 
  • Wilmar expects tropical oils business to improve in 4Q15. 
  • Cut FY15-17F net profit by 6-9% and lower target price to S$3.36. Maintain Hold. 

9M15’s results below expectations 

  • Wilmar's 9M15 core net profit (excluding losses from investment securities) came in below expectations, at 71% of our full-year projection and consensus numbers. The key culprits were weaker-than-expected contributions from its tropical oils division due to lower CPO prices and processing margins. 
  • Associates contribution also came in below expectations due to losses from its sugar associates in India. 

Oilseeds and grains posted its best quarterly earnings 

  • The oilseeds and grains division posted a 39% yoy jump in its 3Q15 pretax profit to US$244m, its best quarterly earnings since listing. This was due to higher sales volumes, as well as stronger crush margins (due to significantly lower commodity financing activities by financial traders in China) and consumer products’ margins (due to lower feedstock costs). 

But tropical oils and sugar earnings were weaker 

  • Earnings of its tropical oils segment (comprising plantations and palm oil processing) fell 46% yoy in 3Q15 to its lowest quarterly earnings since 2Q07. The weaker results were due to lower CPO prices and processing margins for its palm products. 
  • The group said it recorded lower refining margins in 3Q and its oleochemical and biodiesel earnings were impacted by lower crude oil prices. 
  • Sugar earnings fell 31% yoy in 3Q15 due to the weaker Australian currency and lower merchandising and processing profit. 

Losses from investment securities 

  • The 3Q15 results included a US$61.8m marked-to-market net loss from the group’s investment securities due to the weaker equity markets during the quarter. This resulted in the group’s reported net profit coming in lower than our forecast. 
  • The group revealed that the portfolio has since recovered by approximately US$23.8m in Oct 15. 

Outlook for the rest of the year 

  • The group expects the performance of the oilseeds and grains segment to remain satisfactory. It expects the tropical oils business to improve due to the biodiesel mandate in Indonesia and higher CPO prices. The recent surge in sugar prices is also expected to benefit its sugar milling earnings in 4Q15. 
  • Overall, it expects the performance in 4Q to be satisfactory. 

Cutting earnings estimates, maintain Hold rating 

  • We cut our FY15-17F net profit by 6-8% to reflect weaker profit margins from its tropical oils and sugar divisions. This lowers our SOP-based target price to S$3.36. 
  • The stock remains a Hold as we see strong support at 0.9x CY15 P/BV but without any solid near term catalysts.

Ivy NG Lee Fang CFA CIMB Securities | http://research.itradecimb.com/ 2015-11-11
CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 3.36 Down 3.40