Wilmar International - UOB Kay Hian 2015-11-12: 3Q15 ~ Strong Contribution From China Operations Amid Renminbi Depreciation

Wilmar International - UOB Kay Hian 2015-11-12: 3Q15 ~ Strong Contribution From China Operations Amid Renminbi Depreciation WILMAR INTERNATIONAL LIMITED F34.SI 

Wilmar International (WIL SP) 3Q15: Strong Contribution From China Operations Amid Renminbi Depreciation 

  • Wilmar reported 3Q15 core net profit of US$359m and 9M15 core net profit of US$816m, both of which were in line with our expectations. 
  • Oilseeds & grains reported better-than-expected results which compensated for the weaker contribution from the tropical oils and sugar divisions. 
  • 4Q15 could see better results on better palm downstream margins from the recent Indonesian biodiesel contract awards and improvement in sugar prices. 
  • Maintain BUY. Target price: S$3.60. 


RESULTS 


 Results within expectations. 

  • Wilmar International (Wilmar) reported 3Q15 core net profit of US$359m (+85.4% qoq, -16.5% yoy) and 9M15 core net profit of US$816m (+1.1% yoy). The results were in line with our core net profit estimate. 
  • Despite the significant depreciation in regional currencies against the US dollar, Wilmar saw a net forex loss of US$47.1m in 3Q15 (vs 3Q14: US$23.8m loss), which is relatively small for its high exposure to the ringgit, rupiah and renminbi thanks to its effective hedging. 

 Strong growth in the oilseeds & grains segment. 

  • This segment recorded better-than -expected performance and brought in higher PBT margins. PBT margin also improved substantially, coming in at 5.0% in 3Q15 (vs 2.8% in 2Q15 and 3.8% in 3Q14). This was attributable to the improving margins in soybean crushing (higher utilisation rates) and consumer products (on lower raw material costs). Sales volume increased on festive demand. 

STOCK IMPACT 


 Weak performance from tropical oils segment. 

  • PBT dropped 40.3% qoq and 45.9% yoy due to lower contributions from both the plantation and manufacturing divisions. Lower CPO prices, coupled with the drop in sales volume in the refining and downstream business continued to pressure this segment’s performance. 
  • As highlighted in our preview note, sales volume for this division is expected to be lower due to very little biodiesel sales. However, this division should perform better in 4Q15 with the latest biodiesel contract awards from Pertamina, for which Wilmar has allocated almost 50% of Pertamina’s total biodiesel requirement volume from Nov 15 to Apr 16. Biodiesel pricing at the current level is favourable for producers as it covers their feedstock, processing and transportation costs. 

 Sugar segment turns around with the start of the milling season. 

  • Despite higher sales volume from both milling (+>100.0% qoq, +19.4% yoy) and merchandising & processing (+37.1% qoq, +46.1% yoy), revenue was down 1% yoy (+61.8% qoq) to US$1.4b mainly due to a weaker Australian dollar and sugar prices. 
  • In-line with the weaker revenue, PBT dropped 31.4% yoy (turned around from the loss of US$37.0m in 2Q15) to US$108.7m due to lower translated profits from Australia and lower sugar refining margin, especially in Indonesia with lower import quota allocated for 2016. 

 Associates earnings back to black. 

  • Associates registered a US$14.7m profit (vs US$10.3m loss in 2Q15, -55.0% yoy), mainly due to losses from sugar operations in India and lower contribution from associates in China. This was partially mitigated by higher contribution from Cosumar S.A. and Goodman Fielder. In 9M15, associates earnings dropped marginally (-2.9% yoy). 

EARNINGS REVISION/RISK 


 No change to our earnings forecasts. 

  • We are expecting an EPS of 17.4 US cents, 20.7 US cents and 22.0 US cents for 2015-17 respectively 


VALUATION/RECOMMENDATION 


 Maintain BUY. 

  • We roll over valuation to 2016 and maintain our SOTP-based target price of S$3.60. 
  • Key assumptions include 15x PE for its palm upstream, consumer pack and sugar divisions, 13x PE for its palm refining and soybean crushing and 10x PE for the rest of its operations. 
  • Our SOTP target price translates into a blended 12.4x 2016F PE (5-year mean). 


SHARE PRICE CATALYST 

  • Consolidation of soybean crushers could lead to better margins. 
  • 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/ 2015-11-12
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 3.60 Same 3.60


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