Wilmar International (WIL SP) - UOB Kay Hian 2017-11-14: 3Q17 Robust Results, Thanks To Oilseeds & Grains Division

WILMAR INTERNATIONAL LIMITED F34.SI

Wilmar International (WIL SP) - 3Q17: Robust Results, Thanks To Oilseeds & Grains Division

Wilmar International's 3Q17 earnings came in within expectations, supported by strong oilseeds & grains performance.
The qoq jump in earnings was mainly due to strong oilseeds & grains sales volume and significant improvement in margins. However, yoy performance was dragged down by the tropical oils division.
We remain positive on Wilmar’s long-term outlook on the expectation of a strong performance from the oilseeds & grains division.

The improvement in 3Q17 revenue was mainly supported by increased sales from the oilseeds & grains division. For 9M17, revenue rose 9.7% yoy on the back of better sales volume across all three divisions.
Core net profit increased qoq, in line with the improvement in revenue and supported by better margins across all divisions, especially oilseeds & grains which PBT margin jumped to US$27.70/tonne in 3Q17 from US$7.80/tonne in 2Q17. But the weaker yoy core profit was mainly due to weaker contributions from:
1. the tropical oils division as margins were squeezed; and
2. the sugar division due to lower sales volume.
3Q17 core net profit of US$324m was within our expectations. The strong oilseeds & grains performance offset the weakness in the tropical oils and sugar divisions.

The increase in PBT in 3Q17 was mainly due to better margins, while yoy performance was dragged by lower sales volume and weaker margins. For 9M17, PBT was dragged down by weaker margins but this was partially offset by higher FFB production on the back of yield recovery. FFB yield gained 16.3% yoy to 15 tonne/ha in 9M17.

The significant jump in qoq performance was mainly supported by better sales volume from both manufacturing and consumer products as well as good crushing margins. The better yoy performance was driven by higher sales volume.
Management is expecting oilseeds crushing margins to remain positive for the rest of the year. Moreover, the potential cap in soybean imports from China could lead to better crushing margins.

The segment performed weaker than expected, with PBT of US$75m (2Q17: pre-tax loss of US$107m, down 12.9% yoy from 3Q16). This was mainly due to weaker sales volume from the milling and merchandising & processing segment.
For 9M17, pre-tax loss widened to US$66m (9M16: US$11m loss), mainly due to the timing effect from the new sugar marketing programme in Australia. Under the programme, a proportion of the sugar produced would only be sold in 4Q17.

Contributions from other divisions & associates doubled qoq and increased 68.9% yoy in 3Q17. The strong results were largely attributed to better performances from the shipping and fertilizer businesses as well as from the group’s associates in India, Eastern Europe and Morocco.

No change to our earnings forecasts. We maintain our EPS forecasts of 16.5 US cents, 19.8 US cents and 22.7 US cents for 2017-19 respectively.

Maintain BUY and SOTP-based target price of S$4.10. This translates into 14.0x blended 2018F PE, which is slightly higher than its 5-year mean (1-year forward PE of 13.2x). We have pegged:
1. the oilseeds & grain division to 20x 2018F PE to factor in the potential listing, and assumed that this division comprises its China operation,
2. the tropical oils division at 15x 2018F PE, and
3. the sugar division and other businesses at 10x 2018F PE.
We are positive on Wilmar’s outlook on the back of expected strong performance from the oilseeds & grains division. Management is continuing with its expansion plans, especially in the oilseeds & grains operation in China.
Demand for consumer products is expected to increase, supported by the bright economic outlook in key Asian countries. Meanwhile, the listing of Wilmar’s China operations is on track and the exercise is expected to unlock value for the group.

The potential listing of its China operations. As more details of its China operations are made available in the listing process, investors might see greater value in Wilmar.
Stronger-than-expected earnings growth.

Leow Huey Chuen UOB Kay Hian | Ooi Mong Huey UOB Kay Hian | http://research.uobkayhian.com/ 2017-11-14

UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 4.10 Down 4.400