Wilmar - RHB Invest 2017-08-11: Double Whammy From Palm And Soybeans

Wilmar - RHB Invest 2017-08-11: Double Whammy From Palm And Soybeans WILMAR INTERNATIONAL LIMITED F34.SI

Wilmar - Double Whammy From Palm And Soybeans

  • While we had expected Wilmar to record weak numbers in 2Q17, its results are still below our estimates. This was attributed to the low margins in its tropical oils merchandising and processing business and oilseeds crushing segment. On top of that, 2Q is still a seasonally weak quarter for its sugar division. 
  • The listing of its China operations remains a swing factor for the stock. However, as the timeframe for the potential IPO is 18 months, we keep our NEUTRAL call. 
  • Our Target Price drops to SGD3.43 (from SGD3.62, 0% upside).

Profit from tropical oils unit is well below expectations. 

  • Despite FFB production recovering 32% YoY, pre-tax profit for the segment fell 68% YoY due to weaker margins in the merchandising and processing businesses. The group attributed this to the challenging operating conditions. 
  • We think this could be due to the waning demand for biodiesel. Wilmar expects its performance to improve in 2H17, on the back of stronger production yield and wider downstream margins.

Oilseeds segment turns around from losses last year. 

  • We note that international soybean prices were turbulent in 2Q17. As such, we think it was commendable that Wilmar recovered from its one-off losses in 2Q16, given the volatility in soybean prices. 
  • The group expects its crushing margin to remain positive for the rest of the year.
  • Consumer division is still a steady performer, with its sales volume growing 10% YoY and revenue rising 4% YoY. 2Q remains a seasonally weak quarter for sugar milling. 
  • We also note that sugar trading probably saw weaker profits or some losses – since revenue grew 60% YoY but overall pre-tax losses for its sugar division increased.

Maintain NEUTRAL. 

  • We lower our FY17F-19F earnings by 8%/5%/4% to factor in a more challenging operating environment for Wilmar’s tropical oil merchandising and processing businesses. This lowers our SOP-derived TP to SGD3.43.
  • The upcoming IPO of the group’s China unit remains a factor that could swing investor interest on the stock. However, we do not see a need to accumulate its shares at this point, given our cautious outlook on CPO prices (2017 CPO price assumption: MYR 2,600/tonne) and the volatility in soybean prices.

Juliana Cai CFA RHB Invest | http://www.rhbinvest.com.sg/ 2017-08-11
RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 3.43 Down 3.620