Wilmar International - CGS-CIMB 2018-05-15: Why We Still Like Wilmar Post Its 1Q18 Briefing

WILMAR INTERNATIONAL LIMITED SGX: F34

Wilmar International - Why We Still Like Wilmar Post Its 1Q18 Briefing

We remain positive on Wilmar post its 1Q18 results briefing for three reasons.
- Firstly, we expect the group to deliver better earnings in 2Q on a y-o-y basis.
- Secondly, we expect the listing of its China operations, which could be worth more than Wilmar’s current market cap of US$15bn, to catalyse its share price.
- Thirdly, the group’s current valuations are attractive from P/BV and P/E perspectives.

The crush margin is expected to be stronger in 2Q18 due to the timely purchase of soybeans.
The tropical oils margin could improve with the reinstatement of the export tax in Malaysia in May and higher biodiesel demand.
Sugar earnings are likely to mprove in 2Q due to higher sales.
It is on track to list its China operations in 2H19.
The group is optimistic that the US-China trade war will be resolved through negotiation and is hopeful that China will not impose a 25% import duty on US soybeans.

1Q18 oilseeds and grains profit of US$173m was lower than 1Q17’s US$208m (timely purchase of raw materials) but was much higher than 1Q16’s US$169m.
It expects a better crush margin in 2Q18 due to better positioning of raw materials and higher crush volumes while the tropical oils division will benefit from a higher refining margin in Malaysia and demand for biodiesel due to higher crude oil prices.
The sugar division should improve as the delivery of sugar from its mill was delayed from 1Q18 to 2Q18.

In view of the above, we are optimistic that the group will deliver stronger 2Q18 earnings.On top of this, the group posted weak 2Q17 PBT of only RM93m due to wider losses at its sugar division and poor earnings from the tropical oils as well as the oilseeds and grains divisions. As such, we are keeping to our FY18 earnings forecasts as we project stronger 2Q18 earnings to offset the slightly weaker 1Q18 earnings.

Wilmar said that it remains on track to list its China operations in Shanghai in 2H19. The China operations made up around 65% of FY17 earnings and it is likely to offer 10% new shares during the IPO. We gathered that the max P/E allowed for a new listing in Shanghai was 23x.
Given our estimate for the business’s FY17 net profit of US$680m, Wilmar China could be worth US$12.2bn to US$15.7bn, based on 18-23x P/E, against the group’s current market cap of US$15bn.

The group revealed that it is hopeful that the US-China trade war will be resolved through negotiations and that this will not affect its soybean crush operations in China.
On the brighter side, the higher volatility in soybean prices offers opportunities to better position its raw materials.
Wilmar also said that it is among the top three bidders for Indian vegetable oil refiner Ruchi Soya’s assets.

We remain positive following the briefing and maintain Add due to its attractive valuations of 0.91x P/BV and 13.7x FY18F P/E (below the historical 3-year average P/E of 14.2x) and plans to list its China assets.
Key downside risks include untimely purchases of raw materials and failure to list its China businesses.

Ivy NG Lee Fang CFA CGS-CIMB | https://research.itradecimb.com/ 2018-05-15

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