WILMAR INTERNATIONAL LIMITED
F34.SI
Wilmar International - 2Q net losses in line with profit warning
- Wilmar reported its first quarterly net loss of US$220m in 2Q16.
- This is in line with its guidance and our forecasts, but below consensus.
- The oilseeds and grains as well as sugar divisions were the key culprits.
- Better palm and laurics and consumer products unable to offset the huge losses.
- Maintain Reduce with lower TP, due to concerns over challenging environment.
2Q losses in line with profit warning guidance
- Wilmar posted its first quarterly net loss of US$220m in 2Q16, against a core profit of US$222m/US$185m in 1Q16/2Q15, due mainly to losses at its oilseeds and grains (O&G) segment.
- The reported net loss was slightly lower than Wilmar’s profit warning guidance of US$230m for 2Q. The losses pushed down 1H16’s core net profit by 99% yoy to just US$2m.
- We consider the 1H numbers in line with our full-year net profit forecast of US$804m but below consensus’ full-year net profit estimates of US$943m.
O&G losses due to untimely purchase in a volatile market
- The 2Q losses were largely due to the oilseeds and grains division (O&G) which was affected by the volatile soybean market. The O&G division posted a loss before tax of US$344m for 2Q16 and US$175m for 1H16 (2Q15/1H15 profit of US$116m/US$282m).
- The group revealed that this was caused by untimely purchase of soybean in a highly volatile market, which more than offset the stable consumer products earnings. On top of these, sugar losses more than doubled to US$78.7m (2Q15: losses of US$37.5m).
Cargill also posted losses due to a wrong-way bet on soybeans
- Cargill, which competes with Wilmar in some markets, also reported a loss of US$19m for the latest quarter ending May. Cargill said the loss in its origination and processing segment was related to a rally in soybean in April and May, which worked against their view on the soybean market. This is similar to what Wilmar experienced in 2Q for O&G.
Better palm and laurics as well as associates earnings
- The tropical oils segment (plantations and palm oil processing) posted a 14%/11% rise in PBT in 2Q16/1H16 to US$186m/US$336m as higher downstream earnings more than offset the 32%/20% drop in FFB output.
- Associates contributed higher earnings of US$32m/US$44.5m in 2Q16/1H16, helping to offset losses from other divisions
Keep interim dividend intact, we project a better 2H16
- Wilmar proposed an interim dividend payment of S$0.025 for 1H16, unchanged from the previous year. This is a pleasant surprise given the much weaker 1H16 earnings. We project
- Wilmar delivering a stronger 2H performance as we expect its O&G and sugar divisions to return to profitability from 3Q onwards. This is broadly in line with the group’s guidance for a satisfactory performance for the rest of the year.
Maintain Reduce with a lower target price
- Wilmar’s share price has fallen 7.8% since Wilmar released its profit warnings. The market appears to have priced in the losses in 2Q judging from the S$1.6bn (US$1.2bn) drop in its market capitalisation. However, we keep our Reduce call with a lower SOP-based target price (S$3.05, widened discount to 15% from 10% to reflect the challenging market environment).
- Key risks are stronger earnings.
Ivy NG Lee Fang CFA
CIMB Research
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http://research.itradecimb.com/
2016-08-11
CIMB Research
SGX Stock
Analyst Report
3.05
Down
3.230
