Wilmar International - CIMB Research 2016-05-11: Building consumer products powerhouse

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WILMAR INTERNATIONAL LIMITED F34.SI 

Wilmar International - Building consumer products powerhouse 

• We are neutral on the group, following the 1Q16 results briefing today. 
• We are positive on its ambition to expand its consumer products business. 
• This could boost future profit margins and provide a more stable income stream. 
• However, 2Q16 earnings could be affected by weaker crush margin in China. 
• Maintain Hold and SOP-based target price due to lack of near-term catalysts. P/BV of 1x offers good support. 

Neutral on key takeaways from 1Q16 briefing 

• The key takeaways from Wilmar’s 1Q results briefing are: 
  1. its ambition to expand into a global consumer powerhouse; 
  2. plans to venture into the food and home care segments via M&A or partnership; and 
  3. guidance that crush margin in China could come under pressure in 2Q. 
• Overall, we are neutral following the briefing as our positive view on its long-term strategy is offset by management’s guidance on a challenging 2Q. 

Keen to expand its consumer products business 

• Wilmar shared its long-term plans to develop or acquire businesses involved in consumer products for the food and home care segments, in which the group believes it has competitive advantages over peers. 
• Its vision is to venture into businesses with strong growth potential and high barriers to entry. These businesses must complement its existing operations and at the same time, cater to the lifestyles of consumers. 

Positive on its plans to raise the value-add of its products 

• We are positive on its plan to expand its consumer products division, as this would help to widen the profit margin of its businesses and provide the group with more stable income stream. It would also allow the group to tap into the expanding middle income segment in Asia and lower its distribution costs to stay competitive against its peers. 
• Wilmar is currently the largest manufacturer of consumer pack edible oils worldwide. 

Clarification on 2Q prospects 

• The group expects operating conditions in 2Q to be more challenging due mainly to concerns that crush margin could come under pressure as a result of China’s excessive soybean imports in the coming months. This, coupled with the volatile markets, could impact the group’s 2Q16 earnings. 

Other interesting points from the briefing 

• The group revealed that it made one-off impairments of: 

1. US$11m on property, plant and equipment in Europe following a restructuring exercise; and 
2. US$11.7m on shareholder loan to an associate in China in 1Q16. 

• The group expects CPO production from its estates to improve in Jul onwards and projects that full-year CPO output from its estates will be flat or down slightly. 

Maintain Hold call due to lack of short-term catalysts 

• We maintain our earnings forecasts and SOP-based target price of S$3.49. 
• We are positive on the group’s long-term prospects and plan to expand its consumer product business over time. However, near-term earnings may not be exciting due to weak demand and overcapacity issues in certain markets.

Ivy NG Lee Fang CFA CIMB Securities | http://research.itradecimb.com/ 2016-05-11

CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 3.49 Same 3.49