Wilmar International - CIMB Research 2015-12-09: Asia’s leading agribusiness group

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WILMAR INTERNATIONAL LIMITED F34.SI 

Wilmar International - Asia’s leading agribusiness group 

• Earnings were resilient against lower commodity prices in 9M15. 
• Strong crush margins boosted 9M15 oilseeds and grains profit. 
• Tropical oils business to benefit from higher biodiesel sales and CPO prices. 
• We project minimal impact from the unwinding of carry trade. 
• Maintain Hold, as share price is supported by attractive 0.8x FY16 P/BV. 

■ Resilient earnings despite lower commodity prices in 9M15 

• The group posted a 1% increase in its 9M15 core net profit, thanks to the sharp rise in its oilseeds and grains profit. This is commendable, given the lower selling prices for all its key products. 
• We believe this demonstrates that Wilmar’s earnings are more resilient than those of its peers, as its business model is more integrated. 

■ Oilseeds and grains posted the best quarterly earnings ever in 3Q 

• The oilseeds and grains division posted a 39% yoy jump in its 3Q15 pretax profit to US$244m, the best quarterly earnings for the division 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 product margins (due to lower feedstock costs). This helped to cushion weaker tropical oils earnings. 

■ Beneficiary of Indonesia biodiesel mandate 

• The group is expected to be a key beneficiary of Indonesia’s plans to raise its biodiesel blend from 15% in 2015 to 20% of diesel in 2016. This is because the group is the largest biodiesel producer in Indonesia and has been allocated 50% of the biodiesel volumes that Pertamina plans to purchase from Nov 15- Apr 16. This would boost its tropical oils earnings in FY16. 

■ Project better earnings in 2016 

• We project that Wilmar will deliver stronger earnings in FY16, driven by higher contributions from tropical oils, oilseeds and grains, as well as sugar. 
• The group’s tropical oils division is likely to benefit from higher CPO selling prices and biodiesel sales volumes, while the sugar division may benefit from stronger sugar prices. 
• We expect the oilseeds and grains business to gain from the group’s expansion into the consumer products business in order to raise the value added. 

■ Minimal impact from unwinding of carry trade 

• Wilmar explained that the earnings impact from the unwinding of carry trade would not be meaningful. 
• The 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 has no issue meeting maturing short-term debt obligations of US$15.1bn, as total available liquid assets stood at US$18bn at end-Sep 2015. 

■ Maintain Hold due to lack of strong catalysts 

• We believe the stock is attractive at 0.8x FY16 P/BV but it lacks strong catalysts. 
• We continue to advocate a Hold rating and would turn more positive on the stock if we see more significant earnings contribution from its expansion into consumer products in recent years.
• TP S$3.36.

Ivy NG Lee Fang CFA CIMB Securities | http://research.itradecimb.com/ 2015-12-09

CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 3.36 Same 3.36