Wilmar International - CGS-CIMB 2018-05-10: Weaker Tropical Oils A Drag On 1Q18 Earnings

WILMAR INTERNATIONAL LIMITED SGX: F34

Wilmar International - Weaker Tropical Oils A Drag On 1Q18 Earnings

Wilmar’s 1Q18 results below expectation due to lower tropical oils earnings.
Core net profit fell 37% y-o-y due to weaker performances from key divisions.
Tropical oils and sugar posted poorer earnings due to weaker refining margins.
The group said the plan to list its China operations is on track for 2H19.

We retain our ADD call due to its attractive valuations and plan to list its China assets.

Wilmar posted weak 1Q18 core net profit of US$183m due to lower profit from all its key business segments.
1Q18 core net profit (excluding gains from investment securities) of US$183m formed 17% of our and 15% of consensus full-year forecasts. We consider this to be slightly below expectation due to lower-than-expected earnings from its tropical oils division.
Wilmar’s 1Q core net profit has historically accounted for 18-30% of its full-year ore earnings.

The group’s 1Q18 pretax profit fell 29% y-o-y due to weaker earnings from oilseeds and grains, tropical oils, as well as wider losses from its sugar division.
Reported net profit posted a wider 41% y-o-y drop in earnings due to absence of gain from investment securities in the previous year.

Tropical oils posted a 34% y-o-y decline in 1Q18 pretax profit due to lower CPO price and poor margins in the downstream businesses. This was partially offset by a 6.5% improvement in FFB yields in 1Q18 to 4.9 tonnes/ha due to favourable weather conditions.
The sugar division posted higher pretax losses of US$39m for 1Q18 (US$34.5m in 1Q17) due to weaker milling margins, though this was mitigated by steady performances from the merchandising business.

Oilseeds and grains pretax profit fell 17% y-o-y as lower crush margin more than offset the 24% rise in sales volume to 8.9m tonnes. The higher crush volumes were due to the Chinese Spring Festival and improved demand for consumer products.
Average pretax profit per tonne for this division fell 33% y-o-y to US$19 per tonne due to lower crush margins.

The other segments of the group posted lower earnings due to the absence of investment gains. The group’s associates and JV posted flattish earnings as stronger performance by its Africa and India investments was offset by weaker contributions from associates and joint ventures in China and Vietnam.

Wilmar revealed that the prospect of China imposing import tariffs on soybeans could result in prices staying volatile in the coming quarters.
It does not expect the performance of the oilseed crushing business to be affected in the short-term, but indicated that a prolonged standoff between China and the US could affect the utilisation of its plant but expects this to be partially mitigated by better performance from flour and rice.

We are keeping our earnings pending an update with Wilmar, SOP-based target price of S$4.10 per share and our ADD call on the stock.
We still favour Wilmar due to its attractive valuations and plan to list its China operations by 2H19. The stock trades at a forward P/E of 12.6x and P/BV of 0.9x.
Key risks to our view are lower-than-expected crush and refining margins as well as lower CPO and sugar prices.

Ivy NG Lee Fang CFA CGS-CIMB | https://research.itradecimb.com/ 2018-05-10

SGX Stock Analyst Report ADD Maintain ADD 4.100 Same 4.100