Wilmar International - CIMB Research 2017-05-11: Upgrade To ADD Due To Emerging Catalysts

Wilmar International - CIMB Research 2017-05-11: Upgrade to Add due to emerging catalysts WILMAR INTERNATIONAL LIMITED F34.SI

Wilmar International - Upgrade to Add due to emerging catalysts

  • Strongest 1Q core net profit since 2013.
  • Oilseeds and grains, tropical oils and associates are key earnings drivers.
  • Higher reported net profit due mainly to gain from investment securities.
  • We are positive on the possible plan to separately list its China operations.
  • Upgrade to Add; key catalysts are strong 1Q earnings and plans to unlock value.

Strongest 1Q core net profit since 2013 

  • Wilmar posted a strong 1Q17 core net profit of US$313m, which represents the group’s best 1Q core net profit achievement since 2013. The strong results were driven by better performance across all its key segments, except sugar. 
  • The 1Q17 core net profit (excluding gains from investment securities) of US$313m formed 28% of our and 25% of consensus full-year forecasts. 
  • We consider this to be broadly in line. Wilmar’s 1Q core net profit has historically accounted for 18-30% of its full-year core earnings.

Most key segments bloom in 1Q17 

  • The group’s 1Q17 pretax profit grew 45% yoy thanks to stronger earnings from oilseeds and grains, tropical oils and associates. 
  • Reported net profit grew at a higher rate of 51% yoy due to lower minority interests. 
  • Core net profit, which excluded a gain from investment securities estimated to be US$53.3m, grew at a slower rate of 41%.

Oilseeds and grains lead the pack 

  • The oilseeds and grains division was the largest earnings growth driver for the group in 1Q17. This division posted 27%/20% yoy/qoq rise in PBT, thanks to higher soybean volumes and stable crush margin. The contribution would have been higher if not for the weaker seasonal sales volumes from consumer products businesses, which were affected by the early Chinese Spring Festival in 2017. 
  • We estimate pretax profit per tonne for this division rose 26% qoq and 28% yoy to US$30 per tonne.

Tropical oils and associates also lifted earnings 

  • The tropical oils segment (plantations and palm oil processing) posted a 20% rise in PBT in 1Q17 to US$179m thanks to higher refining, stronger FFB output (+4% yoy) and higher CPO selling prices. 
  • Associates delivered better earnings due to higher contributions from its China associates and absence of losses from sugar associates in India. However, this was partly offset by higher sugar losses due to seasonal maintenance and weaker performance from sugar merchandising and refining division.

Evaluating potential listing of its China operations 

  • The group is cautiously optimistic its 2Q17 performance will be satisfactory. It is positive on its flour and consumer products business but said sugar operations may be impacted by the recent volatility in sugar prices. 
  • The group announced it is carrying out an internal restructuring of its China operations with the possibility of a separate listing. This is the second time it has considered listing this unit. In May 2009, the group said it plans to list 20-30% of its China business in an IPO, in either Hong Kong or Shanghai.

Upgrade to Add due to attractive valuations and catalysts 

  • We are positive on the proposed plan to list its China operations, as it could help unlock value for the group. 
  • Wilmar’s share price has declined by 13% over the past three months, making the group’s P/E valuation more attractive. In view of this, the group’s strong 1Q results and potential listing of its China operations, we upgrade the stock to Add from Hold with an unchanged SOP target price of S$3.93. 
  • Key risk to our view is lower-than-expected crush and refining margins.

Ivy NG Lee Fang CFA CIMB Research | http://research.itradecimb.com/ 2017-05-11
CIMB Research SGX Stock Analyst Report ADD Upgrade HOLD 3.930 Same 3.930