Wilmar International (WIL SP) - UOB Kay Hian 2018-05-11: 1Q18 Below Expectations Due To Weak Oilseeds Margin And Loss In Sugar Division

Wilmar International (WIL SP) - UOB Kay Hian 2018-05-11: 1q18 Below Expectations Due To Weak Oilseeds Margin And Loss In Sugar Division WILMAR INTERNATIONAL LIMITED SGX: F34

Wilmar International (WIL SP) - 1Q18 Below Expectations Due To Weak Oilseeds Margin And Loss In Sugar Division

  • Wilmar reported a core net profit of US$183m in 1Q18, below expectations due to weaker-than-expected oilseeds & grains margin as well as losses in the sugar division as the milling business’ contribution is expected to be recognised in the next quarter.
  • 1Q has historically been weaker than 4Q. Earnings were lower y-o-y mainly due to a weaker margin which was mitigated by higher sales volume.
  • Maintain EPS estimates pending outlook guidance. Maintain BUY. Target price: S$4.10.



RESULTS

  • Results below expectations. Wilmar International (Wilmar) reported 1Q18 core net profit of US$183m (-50.9% q-o-q, -40.6% y-o-y), coming in below our expectation of US$320m-360m. The negative variance is mainly due to weaker-than-expected oilseeds & grains margin and sugar division reported a loss in 1Q18 due to lower-than-expected milling sales volume and margin. The anticipated increase in sales volume for sugar milling business, arising from the new sugar marketing programme introduced in 2017, is expected to be recognised in subsequent quarters.
  • Tropical Oils: Weaker qoq and yoy due to weaker CPO prices. Segment performance came in within expectation. PBT decreased q-o-q due weaker sales volume on seasonality. The weaker y-o-y results were mainly dragged down by weaker CPO ASP despite improvement in production that led to higher manufacturing sales volume. The tropical oils PBT margin declined to 2.3% in 1Q18 from 3.3% in 1Q17.
  • Oilseeds & Grains: Weaker-than-expected margin. The division posted weaker-than- expected results mainly due to weaker-than-expected margin. Soybean crushed volume and consumer products sales volume was within our expectations. PBT decreased 16.4% q-o-q mainly due to weaker margin and lower soybean crushed volume. On a y-o-y basis, the weaker PBT was mainly caused by weaker PBT margin of US$19.5/tonne in 1Q18 vs US$29.2/tonne in 1Q17.
  • Sugar: Registered loss was a surprise. Segment performance was below expectations. We were expecting sugar division to register a profit in 1Q18 as the change in milling business marketing programme should positively contribute to the group. Management indicated that the anticipated increase in sales volume for sugar milling business, arising from the new sugar marketing programme introduced in 2017, is expected to be recognised in subsequent quarters.


STOCK IMPACT

  • US-China trade could lead to volatile earnings for oilseeds & grains division. Management indicated that the potential of China imposing import tariffs on US soybeans will result in soybean prices staying volatile for the coming quarters. 
  • Management reckons that the performance of soybean crushing business will not be affected in the short term, but a prolonged standoff between China and the US would affect the utilisation of crushing plants. Nevertheless, Wilmar foresees that any negative effect from the US-China trade war is expected to be partially mitigated by better performances from both flour and rice.


EARNINGS REVISION/RISK

  • No change to our earnings forecasts. We maintain our EPS forecasts of 19.8 US cents, 22.7 US cents and 23.6 US cents for 2018-20 respectively for now, pending outlook guidance from management at the results briefing later.


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 & 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 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 | https://research.uobkayhian.com/ 2018-05-11
SGX Stock Analyst Report BUY Maintain BUY 4.100 Same 4.100



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