Wilmar International - CIMB Research 2015-11-13: Key takeaways from 3Q results briefing

Wilmar International - CIMB Research 2015-11-13: Key takeaways from 3Q results briefing WILMAR INTERNATIONAL LIMITED F34.SI 

Wilmar International - Key takeaways from 3Q results briefing 

  • Positive on guidance for good 4Q results, in line with our expectations. 
  • Tropical oils and sugar divisions could deliver better 4Q earnings, in our view. 
  • Well-positioned to tap Asia’s growing middle-income group. 
  • Buying back shares as it believes the stock is undervalued. 
  • Maintain Hold. We would turn more positive when industry prospects improve. 

■ Key takeaways from results briefing 

  • The main takeaways for us from Wilmar’s results briefing were its guidance for: 
    1. 4Q crush margins to remain satisfactory due to lower soybean imports by financial traders and better economies of scale; 
    2. better earnings from tropical oils, driven by higher biodiesel sales and CPO prices; and 
    3. better 4Q performance for sugar division due to higher sugar prices. 
  • The group also thinks the stock is undervalued and has bought back its shares. 

■ Clears the air on carry trade and liquidity concerns 

  • The group also explained that the earnings impact from the unwinding of carry trade is not meaningful. Carry trade refers to the group’s treasury activities of borrowing in US$ and parking its cash in Rmb deposits that fetch higher interest rates to achieve lower funding costs. 
  • Wilmar also indicated that it has no problem meeting maturing short-term debt obligations of US$15.1bn, as its total available liquid assets (including available undrawn committed facilities) was US$18bn as at Sep 2015. 

■ Positive on guidance for satisfactory 4Q performance 

  • We are more positive following the briefing due to management guidance for good 4Q results, driven by stronger earnings performance by its tropical oils and sugar businesses. This is broadly in line with our projection for the group to deliver reported net profit of US$338m in 4Q versus US$276m in 3Q. 

■ Well-positioned to tap growing middle-income group in Asia 

  • The group revealed its plans to expand its consumer products business in order to tap the growing middle class population in Asia. It also believes that its stock is currently undervalued given its strong brand and distribution network in major consumer countries for agricultural products. 
  • From P/BV perspective, we agree that the stock is undervalued and should trade closer to 1x FY15 P/BV level, which is broadly in line with our target price. 

■ Keen to scoop up good assets 

  • Wilmar is of the view that the current low commodity prices offer good opportunities for potential investment in good agriculture-related assets for the long term. As such, it is on the lookout for potential M&A and has reduced investments in greenfield projects. 

■ Maintain Hold due to lacks of strong catalysts 

  • We believe the stock is attractive at 0.9x P/BV but lacks strong catalysts. We continue to advocate a Hold rating due to limited upside from the current share price level. 
  • We would turn more positive on the stock if we see signs of significant improvement in the operating environment for its tropical oils and crushing business in China, which have been negatively affected by overcapacity issues.

Ivy NG Lee Fang CFA CIMB Securities | http://research.itradecimb.com/ 2015-11-13
CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 3.36 Same 3.36