Wilmar - RHB Invest 2017-11-14: Palm Operations A Drag On Profit

Wilmar - RHB Invest 2017-11-14: Palm Operations A Drag On Profit WILMAR INTERNATIONAL LIMITED F34.SI

Wilmar - Palm Operations A Drag On Profit

  • Wilmar’s 3Q17 core PATMI came in slightly below our expectations at USD324m while 9M17 core PATMI only met 60% of our as well as consensus’ FY17 estimates. 
  • Its oilseeds and grains segment continued to hold up on stronger volumes and positive crush margins. However, the overall results were offset by weaker downstream margins in the tropical oils segment and lower-than-expected earnings in the sugar division. 
  • Maintain NEUTRAL with a lower TP of SGD3.33 (from SGD3.43, 0% downside).

Oilseeds and grains held up well

  • Oilseeds and grains held up well, delivering strong growth in both revenue and sales volume. Crush margins were positive in 3Q17. At current soybean prices of less than USD10/bushel, we believe crush margins would remain positive in 4Q17 in line with management’s expectations.

Tropical oils suffered on lower processing and downstream margins.

  • Although sales for the segment were down 2% YoY, pretax profit fell by 51%. We think that downstream margins would continue to face pressure moving forward as Indonesia reduced its biofuel quota for Nov 2017-Apr 2018 by 8% YoY to1.41m tonnes. 
  • Wilmar International’s allocation however fell by 22% as the industry increased capacity. US’ implementation of more import duties on Indonesia’s biofuel may also negatively impact its exports. The lower margins were partially offset by improved FFB production, which grew 12% YoY in line with management’s guidance.

Weakness in sugar division should normalise in 4Q17. 

  • Its sugar division’s 3Q17 pretax profit fell 13% YoY. Management attributed this to the timing effect of the new Australian sugar marketing programme. 
  • We believe the overall result for this division would normalise by next quarter’s results once sugar inventories are sold.

Palm’s a drag, maintain NEUTRAL. 

  • We trim our forecasts by 3% for FY17F and 1% for FY18F-19F on the back of weaker tropical oils downstream margins. We roll over our SOP valuations to FY18F and derived a new TP of SGD3.33. 
  • Currently our current CPO price forecasts are MYR2,600/tonne (USD584/tonne) for 2017 and MYR2,400/tonne (USD565/tonne) for 2018. 
  • Key upside risk is stronger CPO prices if La Nina pans out. 
  • Key downside risk includes higher raw material costs for crushing if soybean prices continue to trend up.

Juliana Cai CFA RHB Invest | http://www.rhbinvest.com.sg/ 2017-11-14
RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 3.33 Down 3.430