Wilmar - OCBC Investment 2016-11-14: No change to our view

Wilmar - OCBC Investment 2016-11-14: No change to our view WILMAR INTERNATIONAL LIMITED F34.SI

Wilmar - No change to our view

  • Higher commodity prices during the quarter.
  • Oilseeds unit recovered from 2Q as expected.
  • But Sugar faced disruption in 3Q.

3Q16 net profit up 47% 

  • Wilmar International Limited’s 3Q16 results were generally within expectations. 
  • Revenue was up 4.1% YoY to US$1.1b on higher commodity prices. 
  • Net profit rose 47% to US$392.2m while core net profit was also higher by 10% to US$394.9m, driven by both Tropical Oils segment and Oilseeds segment. 
  • On Tropical Oils segment, although Plantation results were affected by lower production volume, pre-tax profit rose 81% to US$169m on better crude palm oil prices during the quarter. Oilseeds segment’s pre-tax profit was up 1.9% to US$248m, showing recovery from 2Q16.
  • However, Sugar business pre-tax profit was weaker by 21% to US$86m due to its merchandising business as well as disruption to cane harvesting activities from wet weather in Australia. 
  • Results from Associates improved 20% to US$31.1m on better contributions from China, Africa and Ukraine. 
  • For 9M16, revenue was marginally up 0.7% to US$2.9b, while net profit declined 40.6% to US$411.5m.

Still on schedule for sugar cane harvesting 

  • The surge in sugar prices have led overall revenue to increase by 26% in 3Q16 and 19% in 9M16 to US$1.74b and US$3.55b. However, cane crushing activities were lower due to the unfavourable weather, resulting in weaker profits for the quarter. 
  • Nonetheless, we see a better 4Q as management believes cane harvesting is back on schedule and expects the amount harvested to be at similar levels to last year.

View unchanged 

  • According to the view of OCBC Treasury Research and Strategy, the seasonally lower palm oil production in Malaysia and Indonesia should continue to support prices above MYR2700/MT into early 2017, but noted that there are signs of ample supplies and weak demand that may lead to a correction in palm oil prices next year. 
  • All considered, and following a change in analyst coverage, we keep our HOLD rating. 
  • We still like the group’s long term story as well as strength in Consumer Products, with high growth potential coming from India. 
  • We have adjusted our estimates and our fair value is raised from S$3.00 to S$3.18, based on an unchanged 12.5x FY17F P/E.

Jodie Foo OCBC Investment | http://www.ocbcresearch.com/ 2016-11-14
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 3.18 Up 3.000