Wilmar - RHB Invest 2018-02-26: A Bigger Ang Pow For The Lunar New Year

Wilmar - RHB Invest 2018-02-26: A Bigger Ang Pow For The Lunar New Year WILMAR INTERNATIONAL LIMITED F34.SI

Wilmar - A Bigger Ang Pow For The Lunar New Year

  • Wilmar’s 2017 core profit came in at USD1.05bn, in line with our expectations. The group proposed a higher final dividend of SGD0.07 (previously SGD0.04). 
  • Full-year earnings were mainly held up by a strong performance at the oilseeds and grains segment. 
  • Despite volatilities in global soybean prices, CEO Mr Kuok guided that the segment would continue to do well in 2018F. As such, we raised our earnings forecast by 1-2% on the back of stronger crush margins. 
  • We upgrade our call to BUY with revised Target Price of SGD3.45 (from SGD3.31, 10% upside).

CEO expects crush margins to continue doing well. 

  • The onset of La Nina has resulted in volatilities in the international soybean market. Nevertheless, Wilmar managed to deliver good crush margins in 4Q17. Utilisation rate was close to full in 4Q17. Based on our estimate, Wilmar achieved crush margins as high as c.USD15/tonne in 2017.
  • Looking ahead, CEO, Mr Kuok Khoon Hong guided that demand remains strong in China. He cited that crushing utilisation remains above 80%, and is optimistic on soybean crush margins. We believe this could signal good timing of purchases amidst volatile soybean prices.

FFB production to grow by 5-10% this year. 

  • FFB production yield was down by 22% in 4Q17 as a result of poor weather conditions. We expect slightly higher plantation earnings this year, as FFB production normalises.
  • Processing margins remained low, mainly on low refining margins and lower demand for biodiesel. We expect similar margins in the processing segment with potential upside coming from oleochemicals and specialty fats.

Low base effect in the sugar segment to pave way for better 2018. 

  • The sugar segment was an underperformer in 2017. The segment made a pretax loss of USD25m due to timing effect from the new Australian sugar marketing programme, which deferred a proportion of sales to 1H18.

Merchandising and processing also had a weaker trading performance. 

  • We expect 2018 to see a one-off uptick in sugar milling results due to the timing effect of the marketing programme. Merchandising and processing should also register better results if the trading performance normalises.

Bigger ang pow to celebrate the Lunar New Year. 

  • Final dividend was raised to SGD0.07 per share. Full-year dividend of SGD0.10 represents about 3% dividend yield and a 40% payout ratio (previously 30%). 
  • The group believes it has sufficient cash flow to maintain higher dividends and cited potential special dividends if the listing of its China operations take place.

Upgrade to BUY with revised Target Price of SGD3.45. 

  • We raised our 2018F-2019F earnings by 1-2% on the back of improved crush margins and higher contribution from the sugar segment. With that, we upgrade our call to BUY.
  • Nonetheless, we caution that the high volatilities in the international soybean prices present big risks and advise investors to track this closely.

Juliana Cai CFA RHB Invest | http://www.rhbinvest.com.sg/ 2018-02-26
RHB Invest SGX Stock Analyst Report BUY Upgrade NEUTRAL 3.45 Up 3.310