Wilmar International - CIMB Research 2016-11-10: Strong 3Q earnings as expected

Wilmar International - CIMB Research 2016-11-10: Strong 3Q earnings as expected WILMAR INTERNATIONAL LIMITED F34.SI

Wilmar International - Strong 3Q earnings as expected

  • Wilmar reported a strong set of 3Q results, which were in line with our forecasts.
  • Oilseeds and grains division returned to the black in 3Q16 and helped to recoup some of the losses incurred in 2Q.
  • This coupled with better tropical oils and associates earnings lifted 3Q’s earnings.
  • Sugar division remained in the red in 9M due to continued disruption in harvesting.
  • Maintain Reduce due to concerns over challenging environment.

Strong 3Q broadly in line with expectations 

  • Wilmar posted a strong core net profit of US$385m in 3Q16, against its first quarterly net loss of US$220m in 2Q16. 
  • The good 3Q results was driven by better performances from tropical oils segment and a significant recovery in its oilseeds and grains performances from 2Q. 
  • We consider the 9M16 numbers of US$387m to be in line with our full-year net profit forecast of US$804m as we expect a stronger 4Q net profit. However, the results appear to be below consensus’ full-year net profit estimates of US$903m.

Weaker 9M16 net profit due to losses incurred in 2Q16 

  • The group’s 9M16 core net profit fell 53% yoy due to losses incurred by its oilseeds and grains division in 2Q16 and weaker contribution from its sugar division. 
  • The group’s reported 9M16 net profit was higher due mainly to gains from investment securities O&G and sugar divisions helped to boost qoq earnings The O&G division posted a profit before tax of US$248m for 3Q16 against a loss before tax of US$344m for 2Q16. 
  • The better results were driven by better earnings from both its consumer products and oilseeds crushing businesses. The other driver to 3Q earnings was the sugar division which posted a profit of US$86m in 3Q16 against a loss of US$79m in 2Q16. However, this was not sufficient to cover the sugar losses achieved in 6M16 due to delay in harvesting activities and weaker performance by the merchandising division.

Better palm and laurics as well as associates earnings 

  • The tropical oils segment (plantations and palm oil processing) posted a 30%/17% rise in PBT in 3Q16/9M16 to US$169m/US$505m as higher downstream earnings more than offset the 18%/20% drop in FFB output for 3Q16/9M16. 
  • Associates contributed higher earnings of US$31m/US$85m in 3Q16/9M16 due mainly to stronger contributions from its investments in China, Africa and Ukraine. The other division comprised of mainly shipping and fertiliser businesses also did better.

Project stronger 4Q earnings 

  • We project Wilmar to deliver a stronger 4Q performance as we expect its O&G, tropical oils and sugar divisions to post higher earnings. This is broadly in line with the group’s guidance for a satisfactory performance for the rest of the year.

Maintain Reduce with unchanged target price 

  • Wilmar’s share price has rebounded from its recent low of S$3.05 which was achieved after the group issued a profit warning on its 2Q results. As such, we feel that the market has priced in the stronger 3Q performance at the current price level. 
  • We keep our Reduce call with an unchanged SOP-based target price of S$3.05, pending an update on the group at its quarterly analyst briefing tomorrow. 
  • Key risk is stronger earnings.

Ivy NG Lee Fang CFA CIMB Research | http://research.itradecimb.com/ 2016-11-10
CIMB Research SGX Stock Analyst Report REDUCE Maintain REDUCE 3.050 Same 3.050