Wilmar International - OCBC Investment 2016-05-11: Expect Challenging 2Q16

Wilmar International - OCBC Investment 2016-05-11: Expect Challenging 2Q16 WILMAR INTERNATIONAL LIMITED F34.SI 

Wilmar International - EXPECTS CHALLENGING 2Q16 

  • 1Q PBT margins improved YoY 
  • Increased volatility likely in 2Q 
  • Valuations still not attractive enough 

1Q16 core earnings down 12% 

  • Wilmar International Limited (WIL) saw 1Q16 revenue slipping 4% YoY to US$9002.7m, meeting 22% of our FY16 forecast (pretty in-line with seasonality), and while reported net profit inched up 3% to US$239.4m, core net profit fell 12% to US$224.0m, or 18% of our full-year estimate (slightly below). 
  • Otherwise, we note that PBT margins have actually improved across its all business segments YoY. 

Expects challenging operating conditions in 2Q16 

  • However, management expects the operating conditions in 2Q16 to be challenging. 
  • While the recent improvements in CPO prices will benefit its Plantation but WIL notes that this will be partially offset by lower margins in its downstream businesses due to higher feedstock costs. 
  • Although it continues to see healthy growth in its Consumer Products business, it warns that crush margins are expected to come under pressure (currently already negative) due to an expected flood of soybean arrivals into China in the coming months; but WIL expects them to improve seasonally in 2H. 
  • Last but not least, it expects the recent volatility in sugar prices to have an impact on its Sugar operations. 

Still focused on growing long-term downstream business 

  • Near-term volatilities aside, management maintains its longer-term strategy of making its integrated business model even more efficient while continuing to grow its downstream business, especially into the food and home care segment; this as it continues to see great potential from the rising consumerism in Asia, as per the “Wilmar in Asia” theme for the FY15 Annual Report. 
  • Hence we could see more capex spending or M&A interest going into the food and food-related segments. 

Maintain HOLD; engage closer to S$3.10 

  • While we are keeping our FY16 estimates unchanged as well as our S$3.34 fair value for now, we believe that current valuations are still not attractive enough, despite the pullback after our downgrade on 22 Feb 2016. 
  • Hence we maintain our HOLD call and would only engage closer to S$3.10.

Carey Wong CFA OCBC Securities | http://www.ocbcresearch.com/ 2016-05-11
OCBC Securities SGX Stock Analyst Report HOLD Maintain HOLD 3.34 Same 3.34