Wilmar International - CIMB Research 2016-02-18: Oilseeds and grains post strong profits

Wilmar International - CIMB Research 2016-02-18: Oilseeds and grains post strong profits WILMAR INTERNATIONAL LIMITED F34.SI 

Wilmar International - Oilseeds and grains post strong profits

  • Final core net profit 3-4% above due to higher oilseeds and grain earnings. 
  • Oilseeds and grains recorded its second highest earnings in history. 
  • Tropical oils earnings slumped to its lowest since 2007. 
  • Final dividend of S$0.055 is broadly in line with expectation. 
  • Cut FY16-17 net profit by 5-6% and lower our target price to S$3.28. Maintain Hold.

■ Final core net profit 3-4% above expectations 

  • Wilmar's full-year core net profit (excluding non-operating items) came in 4% above our projection and 3% above consensus numbers. 
  • The better performance was due to higher-than-expected contributions from the oilseeds and grains as well as sugar divisions. 
  • The group posted a 4% drop in core net profit in FY15 due to lower tropical oils and sugar earnings.

■ Oilseeds and grains delivered exceptional growth in 2015

  • The oilseeds and grains segment is the star performer, posting a 98% surge in its PBT to US$689m due to better crush margins and sales volumes. The stronger crush margins were driven by lower commodity financing activities by financial traders in China while consumer product margins improved, thanks to lower feedstock costs.

■ Tropical oils earnings were hit by lower prices and margins

  • The tropical oils segment (comprising plantations and palm oil processing) posted a 44% drop in PBT to US$546m due to lower CPO prices, weak demand and compressed processing margins in the downstream sector due to competition. 
  • Its biodiesel division was affected by the lower biodiesel consumption in Indonesia. However, this is expected to pick up in 2016 following the award of the biodiesel quota in Nov.

■ Sugar earnings were better in 4Q

  • Sugar earnings jumped 49% yoy in 4Q15 on the back of higher sugar prices achieved for the milling business as well as an improvement in the merchandising and manufacturing business. However, sugar PBT fell by 38% in FY15 due to weaker sugar prices and merchandising profit.

■ Higher dividends and prospects for 2016

  • The group has proposed a final dividend of S$0.055 per share, bringing the full-year dividend to S$0.08, which represents a 7% increase from FY14. 
  • For 2016, the group predicts macro factors to remain challenging but believes its resilient business model and healthy balance sheet will allow the group to do reasonably well.

■We cut FY16-17 earnings by 5-6%

  • We cut our FY16-17 net profit by 5-6% to reflect weaker profit margins from its tropical oils and higher depreciation charges due to amendments to the accounting for biological assets. This lowers our SOP-based target price to S$3.28. 
  • The stock remains a Hold as we see strong support at 0.9x CY15 P/BV.

Ivy NG Lee Fang CFA CIMB Securities | http://research.itradecimb.com/ 2016-02-18
CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 3.28 Down 3.36