Wilmar International - CIMB Research 2017-02-20: Strong sugar PBT and tax credit boosted 4Q16

WILMAR INTERNATIONAL LIMITED F34.SI

Wilmar International - Strong sugar PBT and tax credit boosted 4Q16

FY16 core net profit was above our and Bloomberg consensus estimates.
Sugar division posted a strong 4Q16 due to higher sugar prices and sales volumes.
Tropical oils division benefited from higher selling prices for palm products.
Oilseeds and grains division posted better 4Q16 due to stable crush margin .

We raise our target price to S$3.93 but maintain Hold due to limited upside .

Wilmar posted a strong core 4Q16 net profit of US$590m, which made up 60% of its fullyear core net profit.
The strong 4Q was driven by better performance across all its key segments as well as gain from deferred tax assets of US$142.1m for the group’s Indonesian operations.
The final core net profit (excluding deferred tax assets benefit of US$142m) of US$835m was 4%/3% above our/Bloomberg consensus forecast.
As expected, the group declared a final dividend of S$0.04 per share.

The group’s 4Q16 pretax profit grew 39% yoy due to higher sugar and palm oil prices as well as stable crush margin during the quarter.
Net profit grew at a higher rate of 66% yoy as the group recognised net deferred tax assets of US$142.1m.
The group explained that as part of the tax incentive scheme introduced by Indonesia’s Ministry of Finance, it revalued some of its assets in Indonesia for future tax benefits.

The sugar division posted a pre-tax profit US$136m for 4Q16 (+70% yoy) against a pretax loss of US$11m for 9M16.
The better results were driven by higher volume of canes crushed in 4Q as well as the increase in sugar prices. The division's contribution would have been higher if not for a US$33.5m impairment charge on its refinery assets during the quarter.
Oilseeds and grains posted 8% yoy rise in PBT, thanks to stable crushing margin for soybean and stronger demand ahead of the Chinese Spring Festival.

The tropical oils segment (plantations and palm oil processing) posted a 64%/26% rise in PBT in 4Q16/FY16 to US$184m/US$689m on the back of higher downstream earnings as well as stronger selling prices for palm products.
FFB yield improved in 4Q but not sufficient to cover for the losses in crops in 9M16, resulting in a 15% yoy drop in FFB output for the year.
Associates delivered better earnings due to strong contributions from Goodman Fielder and China associates.

We project Wilmar to deliver stronger net profit in FY17, driven by better performance from its oilseeds and grains due to better crush margins and tropical oils on the back of higher FFB production.
Wilmar indicated that it expects the recent lifting of restrictions on foreign companies on the processing of oilseeds and grains in China to benefit its operations in 2017.

Wilmar’s share price had improved 17% over the past three months on the back of rising commodity prices and stable crush margin in China.
We raise our SOP-based target price after removing the 10% holding company discount to reflect the better commodity prices prospects, which will benefit the group.
Maintain Hold as there is limited upside to our target price.

Ivy NG Lee Fang CFA CIMB Research | http://research.itradecimb.com/ 2017-02-20

CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 3.930 Up 3.420