Wilmar - OCBC Investment 2016-08-12: Eyes "Satisfactory" 2H; Upgrade To HOLD

WILMAR INTERNATIONAL LIMITED F34.SI

Wilmar - EYES “SATISFACTORY” 2H; UPGRADE TO HOLD

  • Paring FY16 NPAT forecast by 14%.
  • Near-term risk likely priced in.
  • Upgrade to HOLD with S$3.00 FV.



Posts smaller-than-guided US$220m core loss in 2Q16 

  • Wilmar International Limited (WIL) reported a pretty dismal set of 2Q16 results as expected. 
  • While revenue inched up 0.9% YoY (+4.1% QoQ) to US$9367.5m, reported net profit plunged into the red with a loss of US$220.1m, albeit a tad better than US$230m loss that it had warned. 
  • Management explained that the loss was largely due to "untimely purchases" of soybean for its manufacturing business within Oilseeds & Grains; its Sugar business also turned in a weaker performance due to unfavourable weather conditions and mark-to- market losses on sugar hedges. 
  • On the other hand, its Consumer for 1H16, revenue slipped 1.7% to US$18370.2m, while reported NPAT slipped 95.5% to US$19.3m; core earnings came in at just US$2.2m. 
  • Still, WIL has maintained its interim dividend of S$0.025/share, payable on 30 Aug.


Expects 2H16 to be “satisfactory” 

  • Notwithstanding the one-time loss in 2Q16 and barring unforeseen circumstances, WIL believes that its 2H16 performance will be "satisfactory", citing the resilience of its integrated agribusiness model. 
  • Management believes that margins in Oilseeds & Grains should normalize in 2H16 (probably by 4Q), and with tweaks made to its Risk Management system, the group is unlikely to suffer another shocking loss. And excluding the loss, WIL also noted that other businesses within that segment performed well, especially its Consumer Products which saw 1H16 volume inch up another 1% to some 3.2m MT – management remains confident that it can top 4m MT this year, aided by its market-leading position in several key cooking oil markets like China, India and Indonesia.


Upgrade to HOLD with new S$3.00 FV 

  • To reflect the latest results, we opt to pare both our FY16 and FY17 core earnings estimate by 14%; applying the same 12.5x peg to our FY17F EPS, our fair value dips from S$3.05 to S$3.00. 
  • But we believe that the recent price weakness after its profit warning has captured most of the near-term risk; and as we continue to believe in its long- term story, we upgrade our call from Sell to HOLD.




Carey Wong CFA OCBC Investment | http://www.ocbcresearch.com/ 2016-08-12
OCBC Investment SGX Stock Analyst Report HOLD Upgrade SELL 3.00 Down 3.050


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