Wilmar International - UOB Kay Hian 2018-04-30: 1Q18 Results Preview ~ Expecting A Good Quarter

SGinvestors.io

WILMAR INTERNATIONAL LIMITED F34.SI

Wilmar International - 1q18 Results Preview ~ Expecting A Good Quarter

• We are expecting a better y-o-y performance in 1Q18 due to:
  1. higher soybean crushing margin on stronger soymeal prices;
  2. CNY demand for consumer products; and
  3. higher contributions from the sugar division on delayed sugar sales from 2017.
• We estimate core net profit at US$320m-360m for 1Q18 (1Q17: US$313m). Future earnings growth is expected to be supported by its expansion in China.
• Maintain BUY. Target price: S$4.10.

WHAT’S NEW

• 1Q18 results preview: Expect core net profit of US$320m-360m, which is higher than 1Q17 core net profit of US$313m but lower than 4Q17’s US$374m. Wilmar is targeting to release 1Q18 results on 10 May 18 after the market close.
• Oilseeds & Grains: Better crushing margins and consumer pack sales. Soybean crushing margin is expected to remain good in 1Q18 on the back of strong soymeal demand in China while benefitting from the recent increases in soybean and soybean meal prices due to the US-China trade war and the severe damage in Argentina crops. Margins would have been boosted as soybean crush could have been locked in earlier when soybean prices were still low. Consumer products’ volume growth is expected be better in 1Q18, supported by Chinese New Year (CNY) demand that flowed in in Jan 18.
• Tropical oil: Low production and sales volume. Performance for this division is likely to be weaker q-o-q (weaker margins) but slightly better or flat y-o-y (higher sales volume). Higher contribution from its Indonesia operations would be offset by weaker Malaysia operations. Malaysian refiners suffered from low refining margins due to the export duty exemption for CPO in Jan-Apr 18. Based on back-to-back calculations, Wilmar’s Malaysia’s refining margin was weaker q-o-q at –RM25/tonne in 1Q18 (4Q17: RM22/tonne, 1Q17: RM19/tonne).
• Sugar: Weaker qoq earnings but better yoy. Under the new sugar marketing programme in Australia, a proportion of the sugar produced would only be sold in 1H18. As such, we should see a profit in 1H18 vs historical losses in 1H. We are expecting better y-o-y results on the back of contribution from the sugar milling division. Meanwhile, stable sales volume from the merchandising and processing division is expected to continue to support this segment’s earnings growth.

STOCK IMPACT

Highlights from Wilmar’s 2017 annual report.

• Expansion in China to support future earnings growth. Wilmar is continuing with its expansion in rice and flour milling, noodles manufacturing, crushing and refining in China. The Chinese economy is doing well and demand for high quality consumer products is rising. This would be Wilmar’s key earnings driver going forward. It added one crushing plants and two rice milling plants in China in 2017.
• Venture into downstream in tropical oils. Wilmar entered into a conditional 50:50 joint venture agreement with Tokyo-listed Lion Corporation an acquired a 50% equity interest in Aalst Chocolate in 2017. This new development could enhance tropical oils downstream, but the contribution will not be significant to the group.

EARNINGS REVISION/RISK

• Maintain earnings forecasts for 2018-20. We forecast EPS of 19.8 US cents, 22.7 US cents and 23.6 US cents for 2018-20 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 assuming 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

• The potential listing of its 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/ 2018-04-30

SGX Stock Analyst Report BUY Maintain BUY 4.100 Same 4.100