WILMAR INTERNATIONAL LIMITED
F34.SI
Wilmar International - Near-term challenges
- 1Q16 core earnings slightly below our expectations.
- Operating margins met/exceeded expectations; but results were dragged down by provisions, lower associates/interest income.
- FY16F/17F earnings cut 6%/4% on lower expected crushing/Tropical Oils downstream margins in 2Q16.
1Q16 core earnings below on annualised basis.
- Core 1Q16 earnings of US$222m (-12% y-o-y against restated US$254m) represented 20% of our full-year target (vs. historical average of 22%).
- Reported 1Q16 earnings came in at US$239m (+3% y-o- y against restated US$232m), which included US$17m non- operating gains (net of tax impact) arising from FX translation gains from inter-company loans, and gains from investment securities.
Growth was driven by Tropical Oils, Sugar.
- Oilseeds & Grains continued to deliver stable pretax of US$168.8m (+2% y-o-y). But growth in overall pretax was mostly driven by Tropical Oils, which delivered pretax of US$149.3m (+8% y-o-y) – even after US$11.0m one-off impairment on PPE (as part of restructuring exercise in Europe).
- Sugar segment also reported lower seasonal loss of US$18.2m (vs. US$68m loss in 1Q15), thanks to higher sales volume from Indonesia refinery and higher contribution from Sugar merchandising.
Crush margins to come under pressure.
- We understand crush margins began to narrow from Mar-16, as excessive soybean buying (in reaction to good crush margins in the previous quarters) drove up soybean prices and pressured end-product prices. Reflecting this, we adjusted our crush margin forecasts 14% lower.
- We also reduced Tropical Oils manufacturing margins by 2% on lower expected refining margins, although we anticipate more volume – as demand for sustainable products may increase in consequence to IOI’s suspension from RSPO certification from 1 April 2016.
- All in, FY16F/17F earnings are revised down by 6%/4%.
Valuation:
- We employed DCF methodology (FY17F base year) to arrive at our TP of S$3.75 (WACC 6.9%, TG 3%).
Key Risks to Our View:
- Wilmar’s share price is linearly driven by palm oil refining/ soybean crushing margins on top of CPO/sugar price expectations. There would be downside risk to our CPO price forecasts if Pertamina’s biodiesel off-take fails to live up to our expectations (2.5m kl) this year.
- As Wilmar is an index component, changes in its weightings would also make it vulnerable to swings significantly above or below our TP.
Ben Santoso
DBS Vickers
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http://www.dbsvickers.com/
2016-05-11
DBS Vickers
SGX Stock
Analyst Report
3.75
Down
3.85
