Wilmar International - CIMB Research 2018-02-22: Oilseeds And Grains The Star Performer In FY17

WILMAR INTERNATIONAL LIMITED F34.SI

Wilmar International - Oilseeds And Grains The Star Performer In FY17

Wilmar’s FY17 results were in line with our and consensus full-year forecasts.
Core net profit grew 7% due to better oilseeds and grains and associates earnings.
Tropical oils and sugar posted poorer earnings due to weaker refining margins.
The group is still working on its proposed listing of its China operations.
We retain our ADD call due to its attractive valuations and plans to list its China assets.

4Q17 core net profit rose 16% q-o-q to US$374m, thanks to better performance from oilseeds and grains as well as strong performances of its associates.
On the flipside, 4Q17 core net profit fell 37% y-o-y due to weaker earnings from tropical oils and sugar segments and higher taxes.
Cumulatively, FY17 core net profit of US$1,048m grew 7% yoy and formed 100% of our and 98% of consensus full-year forecasts. This was thanks to strong earnings from all key segments except the sugar and tropical oils division.

The oilseeds and grains pretax profit rose 16%/292% in 4Q/FY17 to US$207m/US$735m due to higher crush margin as well as sales volumes (4Q/FY17:+23%/+13% y-o-y). However, 4Q17 profit would have been better if not for the shift in seasonal demand due to the later Chinese Spring Festival celebration in 2018, which led to lower consumer product sales in 4Q17.
Average pretax profit per tonne for this division rose to US$22 in FY17 vs. US$8.5 in FY16 due to improved margins from the crushing business.

The other segments of the group recorded a 167%/139% jump in pretax profit to US$87m/US$242m for 4Q/FY17, due mainly to gains and dividend income received from its investment portfolio as well as better shipping and fertiliser earnings.
The group’s associates and JV also did well, registering a 66%/62% y-o-y improvement in 4Q17/FY17 pretax profit to US$112m/US$228m, due mainly to stronger earnings from its China and African investments.

Tropical oils posted a 43%/38% y-o-y decline in 4Q17/FY17 pretax profit due to weaker processing margin and lower biodiesel quota awarded. On top of this, FFB yield fell 22% in 4Q17 due to poor weather.
The sugar division posted higher pretax losses of US$25m for FY17, due partly to the timing of the new Australia sugar marketing programme (a certain portion of sugar products to be sold in 1H18), weaker merchandising performance in 1H17 and impairment loss of US$30.6m for its Australian refinery assets.

Wilmar attributed the strong performances in 2017 to its portfolio of high quality agribusiness. The group expects to continue to enjoy sustained growth on the back of its integrated business model and projects that its 2018 performance will remain satisfactory.
The group also revealed that it is working on the proposed listing of its China operations and internal restructuring of the operations is largely completed.

We lower FY18-19F earnings estimates by 4-6% to reflect lower contribution from tropical oils and sugar. We also fine-tune our SOP to reflect the latest earnings and balance sheet which results in a lower SOP-based Target Price of S$4.10.
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 13.3x 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/ 2018-02-22

CIMB Research SGX Stock Analyst Report ADD Maintain ADD 4.10 Down 4.270