Wilmar International - CIMB Research 2017-11-13: Strong Rebound In 3Q Earnings, After A Weak 2Q

Wilmar International - CIMB Research 2017-11-13: Strong Rebound In 3Q Earnings, After A Weak 2Q WILMAR INTERNATIONAL LIMITED F34.SI

Wilmar International - Strong Rebound In 3Q Earnings, After A Weak 2Q

  • Wilmar’s 9M17 results were below expectation due to lower tropical oils earnings.
  • The weaker tropical oils profit was due to lower processing margin and sales volumes.
  • Oilseeds and grains posted its best quarterly earnings since 2014.
  • The group expects a good 4Q17F performance from its oilseeds and grains division.
  • Cut TP and FY17-19F earnings by 4-6.5% but maintain an Add rating.

3Q results were below our expectations 

  • Wilmar’s 3Q17 core net profit rose almost ninefold qoq to US$324m, thanks mainly to strong performances from all key segments as well as its associates. However, 3Q17 core net profit fell by 15.9% yoy due to weaker earnings from the tropical oils and sugar segments. 
  • We consider its 9M17 core net profit, which formed 60% of both our and consensus full-year forecasts, below expectations. 
  • Wilmar’s 9M core net profit has over the past five years accounted for 40-73% of its full-year core earnings (average at 63%).

Tropical oil and sugar divisions posted weaker contributions 

  • The results were below due mainly to weaker-than-expected earnings from the tropical oils and sugar divisions. 
  • Tropical oils posted a 51%/36% yoy decline in 3Q17/9M17 pretax profit due to weaker processing margin and lower biodiesel sales. 
  • Sugar division posted higher pretax losses of US$66m for 9M17, due partly to the timing of the new Australia sugar marketing programme (a certain portion of sugar products to be sold in subsequent quarters) and weaker merchandising performance in 1H17.

Oilseeds and grains was the star performer for 9M17 

  • The oilseeds and grains division reported its highest quarterly profit of US$254m in 3Q17, (since the group adopted revised segmental reporting effective 1Q15) due to higher crush margin as well as sales volumes (+16% yoy). This division posted more than a sevenfold jump in pretax profit to US$528.5m in 9M17 as average pretax profit per tonne for this division rose to US$21.9 in 9M17 vs. US$3.3 in 9M16.

Others segment and associates delivered better results 

  • The other segments of the group posted a 60% yoy jump in 3Q17 pretax profit to US$56.4m due to higher dividend income, gains from its investment portfolio as well as better shipping and fertiliser earnings. 
  • The group’s associates and JV reported a 79% yoy improvement in 3Q17 pretax profit to US$51.3m, due mainly to stronger earnings from its associates in India, Eastern Europe and Morocco.

Expect good 4Q17 performance in oilseeds and grains 

  • Wilmar expects the good performance in the oilseeds and grains segment to continue in 4Q, with crush margins and volume anticipated to remain positive. 
  • The group also expects the performance of its other major business segments to be satisfactory. It remains optimistic about the future of Asia and plans to continue with its expansion in oilseeds and grains, including consumer products.

Maintain Add, on better earnings prospects 

  • We lower FY17-19F earnings estimates by 4-6.5% to reflect weaker margins for the tropical oils segment. We also cut our valuations for the tropical oils segment in our SOP to 1x P/BV from 1.1x P/BV, which led to a lower SOP-based TP of S$4.27. 
  • However, we still favour Wilmar due to its attractive valuations and plan to list its China operations by 2H19. The stock trades on a forward P/E of 13.6x and P/BV of 0.9x. 
  • Key risk to our view is lower-than-expected crush and refining margins as well as lower CPO and sugar prices.

Ivy NG Lee Fang CFA CIMB Research | http://research.itradecimb.com/ 2017-11-13
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 4.27 Down 4.520