Wilmar International - DBS Research 2016-08-12: A long term story

Wilmar International - DBS Vickers 2016-08-12: A long term story WILMAR INTERNATIONAL LIMITED F34.SI

Wilmar International - A long term story

  • Booked 2Q16 net loss of US$220m – as guided in profit warning.
  • Steep losses in Oilseeds & Grains, manufacturing and sugar were the main drags.
  • FY16F/17F earnings cut by 26%/7%, TP cut to S$3.13.
  • No significant near-term catalysts seen. HOLD. 



Lacking near term catalysts. 

  • We do not anticipate catalysts that would move the stock significantly higher in the near term; given heightened risk profile following significant 2Q16 losses.
  • Notwithstanding continued biodiesel allocation in Indonesia; expansion of India presence (through Adani-Wilmar’s proposed JV with Ruchi); and gradual penetration of well-established brands – including that of Goodman Fielder –in China; Wilmar’s FY17F-20F earnings are expected to expand at a c.4% CAGR – based on our revised forecasts.


First-ever loss in 2Q16. 

  • 2Q16 net loss of US$220.1m (against restated US$193.2m in 2Q15) brought its 1H16 reported earnings to just US$19.3m (-95% y-o-y). 
  • The poor results were attributable to a hefty US$343.8m pretax loss in Oilseeds & Grains segment – as the jump in soybean prices since April 2016 went against the group’s positions. This was partly mitigated by strong results from Tropical Oils, which contributed US$186.3m (+14% y-o-y).


Tweaking FY16F/17F earnings. 

  • Based on zero pretax margin assumption for Oilseeds & Grains segment this year, and lower sugarcane yields of 70 MT/ha (from 90 MT/ha) and sugar extraction rate of 13% (from 14%) – ceteris paribus – we cut Wilmar’s FY16F net earnings to US$802m – representing a 26% reduction from our previous estimate of US$1,085m.
  • And, employing crushing pretax margin of c.1.9% (based on past three years’ average) – vs. 2.6% assumed previously – from FY17F onwards, Wilmar’s FY17F earnings were likewise cut by 7% to US$1,042m.

Valuation

  • We employed DCF methodology (FY17F base year) to arrive at our TP of S$3.13 (WACC 7%, TG 3%). With 1% potential upside to our revised TP, we downgraded our rating on the stock to HOLD.

Key Risks to Our View

  • Wilmar’s share price is influenced 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 offtake 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 | http://www.dbsvickers.com/ 2016-08-12
DBS Vickers SGX Stock Analyst Report HOLD Downgrade BUY 3.13 Down 3.760


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