Wilmar International - CIMB Research 2017-08-10: Expect Better 2H Results

Wilmar International - CIMB Research 2017-08-10: Expect Better 2H Results WILMAR INTERNATIONAL LIMITED F34.SI

Wilmar International - Expect Better 2H Results

  • Wilmar International's 2Q17 core net profit fell 94% qoq due to weak performances from key divisions.
  • Oilseeds and grains recovered from a one-time loss in 2Q16, leading to a higher 1H17 profit.
  • Tropical oils and sugar divisions impacted by lower merchandising and refining profit.
  • The group expects better 2H17 performances from most of its key divisions.
  • Maintain Add due to its attractive valuations and plans to list China operations.

2Q17 results were significantly lower vs. 1Q17 but… 

  • Wilmar posted a 94% qoq decline in core net profit to US$37m, due mainly to weaker performances across all its key segments. 
  • Still, 2Q17 earnings, were a significant improvement from 2Q16’s net loss of US$220m, thanks to better performances from its oilseeds and grains unit. 
  • 1H17 core net profit formed 31% of our and 28% of consensus full-year forecasts. We consider this broadly in line. 
  • Wilmar’s 1H core net profit has over the past five years accounted for 0.2-43% of its full-year core earnings (average at 29%).

Hit by challenging operating environment in 2Q 

  • The weak qoq performances were due to lower contributions from tropical oils and oilseeds and grains segments as well as higher losses from the sugar division. Oilseeds and grains recovered from one-off losses in 2Q16 but this was partially offset by weaker yoy results from tropical oils. 
  • The group attributed the weak 2Q earnings to a challenging operating conditions faced by the merchandising and processing businesses of tropical oils and sugar. 
  • As expected, the group announced an interim tax-exempt dividend of S$0.03/share (+20% yoy).

Oilseeds and grains recovered from one-off losses in 2Q16 

  • The oilseeds and grains division was the largest earnings growth driver for the group in 2Q17 and 1H17. This division turned around to record a US$275m pretax profit in 1H17 against a loss of US$175m in 1H16 on the back of higher crush volume and positive crush margins. 
  • However, pretax profit from this division fell 71% qoq as pretax profit per tonne for this division fell 74% qoq to US$8 per tonne.

Lower merchandising profit trumped higher palm oil output 

  • The tropical oils segment (plantations and palm oil processing) posted a 67% qoq and 68% yoy decline in 2Q17 PBT to US$60m due to the challenging operating environment faced by its merchandising and processing business. This more than offset the 32% yoy rise in FFB output from its upstream estates in 2Q17. 
  • The sugar division also posted higher pretax losses of US$106.8m in 2Q17 due to weaker performance from the sugar merchandising and refining division.

Expect better 2H17 performances from all except sugar division 

  • The group expects its tropical oils division to perform better in 2H17 on the back of improvements in production yields and better margins from downstream operations. 
  • The group also indicated that oilseeds crush margins are expected to stay positive for the year and consumer products are set to improve as they enter seasonal peak period.
  • However, the sugar business will continue to be affected by volatility in sugar prices.

Maintain Add, though weak 2Q may cap near-term upside 

  • Despite the weak 2Q17 results, we continue to favour Wilmar due to our expectations of stronger 2H earnings and its proposed plan to list its China operations, which will help the group to unlock value and act as a rerating catalyst. The stock currently trades on a forward P/E of 14.7x and P/BV of 1x. 
  • Key risk to our view is lower-than-expected crush and refining margins as well as lower CPO and sugar prices. 
  • Maintain Add and SOP-based target price (S$4.52).

Ivy NG Lee Fang CFA CIMB Research | http://research.itradecimb.com/ 2017-08-10
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 4.520 Same 4.520