Wilmar International (WIL SP) - UOB Kay Hian 2018-02-23: 4Q17 Results Within Expectations

Wilmar International (WIL SP) - UOB Kay Hian 2018-02-23: 4Q17 Results Within Expectations WILMAR INTERNATIONAL LIMITED F34.SI

Wilmar International (WIL SP) - 4Q17 Results Within Expectations

  • Wilmar’s 4Q17 results were within expectations. The better q-o-q performance was supported by higher sales volume from the tropical oils segment, while the weaker yoy performance was due to lower sales volumes across all divisions except the oilseeds & grains manufacturing (OGM) segment. 
  • The higher net profit for 2017 was boosted by better OGM sales volume and good crushing margins. 
  • We maintain 2018- 19F EPS forecasts pending management guidance. Maintain BUY. Target price: S$4.10.



RESULTS

  • Wilmar International’s (Wilmar) 4Q17 core net profit of US$374m was within our expectations. The strong oilseeds & grains performance and higher contribution from JV & associates offset the weakness in the tropical oils and sugar divisions.

Revenue improved q-o-q… 

  • The better q-o-q revenue in 4Q17 was mainly supported by increased sales volume from the tropical oils division despite weaker FFB production.

…but dropped y-o-y. 

  • The weak y-o-y revenue was due to weaker sales volumes across all divisions except the oilseeds & grains manufacturing segment.
  • Core net profit increased q-o-q, but declined y-o-y, in line with revenue trend.

Net profit improved in 2017. 

  • For 2017, net profit rose 7.3% y-o-y as better oilseeds and grains manufacturing sales volume and good crushing margins mitigated the weakness in tropical oils segment and the loss in the sugar segment.
  • Final tax-exempt dividend of S$0.07/share. Including interim dividend of S$0.03/ share, total dividend for 2017 is S$0.10/share (2016: S$0.065), representing a yield of 3.3%.


STOCK IMPACT


Tropical Oils: Better q-o-q but lower y-o-y. 

  • The increase in PBT in 4Q17 was mainly due to higher sales volume despite weaker FFB production, while y-o-y performance was dragged by lower downstream processing margins, weaker FFB production and weaker CPO ASP. 
  • For 2017, PBT was dragged down by weaker downstream processing margins but this was partially offset by higher FFB production on the back of yield recovery. FFB yield improved to 19.7 tonne/ha in 2017 from 19.0 tonne/ha in 2016.

Oilseeds & Grains: Strong y-o-y results on the back of strong manufacturing sales volume and good crushing margins. 

  • The weaker q-o-q PBT in 4Q17 was due to lower consumer products’ sales volumes. But the better y-o-y performances in 4Q17 and 2017 were driven by higher manufacturing sales volume and good crushing margins.

Sugar: Pre-tax loss in 2017. 

  • The segment performed weaker than expected, with PBT of US$41m (-44.9% q-o-q, -69.5% y-o-y) in 4Q17 due to weaker milling sales volume. 
  • For 2017, Wilmar reported a pre-tax loss of US$25m (2016: PBT of US$125m), partly 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 1H18.

Other divisions, JVs & associates: Results remained strong in 4Q17. 

  • Contributions from other divisions and JVs & associates almost doubled q-o-q and y-o-y in 4Q17. The strong results were largely attributed to better performances from the shipping and fertiliser businesses as well as from associates in China, India and Africa.


EARNINGS REVISION/RISK

  • We maintain our earnings forecasts for 2018-19 pending an analyst briefing. 
  • We are expecting EPS of 19.8 US cents and 22.7 US cents for 2018-19 respectively.


VALUATION/RECOMMENDATION

  • 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 value the oilseeds and grains division at 20x 2018F PE to factor in a potential listing and assume this division is entirely based on its China operations. 
  • We value the tropical oils division at 15x 2018F PE, and the sugar division and other businesses at 10x 2018F PE respectively.


SHARE PRICE CATALYST

  • Potential listing of 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/ 2018-02-23
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 4.100 Same 4.100



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