Wilmar International - OCBC Investment 2016-02-22: Cut to HOLD with S$3.34 FV

WILMAR INTERNATIONAL LIMITED F34.SI

Wilmar: Cut to HOLD with S$3.34 FV

Wilmar International Limited (WIL) ended FY15 on a fairly muted note.
4Q revenue slipped 13% YoY to US$9431.2m, mainly dragged by its Tropical Oils business (-25% YoY), but mitigated by Sugar (+19%).
Still, overall 4Q net profit fell 16% YoY to US$337.2m, while core earnings was down 15% at US$350m.
For the full-year, revenue slipped 10% to US$38776.6m, nearly 10% below our estimate, while net profit eased 9% to US$1056.1m; although core earnings of US$1166m (-4%) was just 1% below our forecast.
WIL declared a final dividend of 5.5 S cents, bringing the total to 8 S cents (versus 7.5 S cents in FY14).

In the quarter, we also saw the unwinding of more “arbitrage trades”, with finance income falling some 30%; the group also recorded a net interest expense of S$7.5m in the quarter, versus a net interest income of S$10.3m in 4Q14.
According to management, it has been gradually running down these interest rate “carry trades” and expects to run down its arbitrage book by 2017.
It adds that the gross debt levels – already down US$5b as of end 2015 - will also continue to decline as more of these trades mature. It will not be engaging in more of such trades as the arbitrage opportunities have dried up.

All in, management noted that it has done "satisfactorily" in 2015, given the challenging environment.
Going forward, WIL believes that it should continue to do "reasonably well", citing its resilient business model and vertical integration.
While management did not give any specifics, it remains upbeat about its Consumer Products business, both in the Oilseeds and Grains as well as the Sugar segment, driven by Asia’s growing middle class. However, WIL does not rule out near-term volatilities due to supply conditions for example.

We have tweaked our estimates slightly after the results, easing our FY16 core earnings by 2.2%; but we have bumped our valuation peg from 12x to 12.5x FY16F EPS, which in turn bumps up our fair value from S$3.27 to S$3.34.
However, in light of the strong run-up prior to the results, we downgrade our rating to HOLD.

Carey Wong CFA OCBC Securities | http://www.ocbcresearch.com/ 2016-02-22

OCBC Securities SGX Stock Analyst Report HOLD Downgrade BUY 3.34 Up 3.27