Wilmar - RHB Invest 2018-05-14: Upbeat On 2Q18 Prospects

Wilmar - RHB Invest 2018-05-14: Upbeat On 2q18 Prospects WILMAR INTERNATIONAL LIMITED SGX: F34

Wilmar - Upbeat On 2Q18 Prospects

  • Reiterate BUY, while we lift our Target Price to SGD3.59 from SGD3.45, offering an upside of 14%.
  • Post Wilmar’s analyst briefing, we are more upbeat on its 2Q18 outlook and expect the performance of all its segments to improve q-o-q.
  • The market has been over-pessimistic on the stock, as a result of the y-o-y decline in earnings in 1Q18. We have highlighted that this was due to a high base effect of 1Q17. As such, we believe the pull-back in share price offers a good buying opportunity for investors.

Better tropical oils downstream margins in 2Q18.

  • Wilmar’s tropical oils segment is likely to perform better in 2Q18. 
  • Currently, our CPO price assumption remains unchanged, at MYR2,550 (USD654). However, with the end of duty-free CPO exports in Malaysia and CPO supply improving seasonally in 2Q18, management said that its refining margin should improve in the current quarter.

Stronger growth in value-added products would further drive margins.

  • Biodiesel demand in Indonesia is picking up, as crude oil prices increase. 
  • In addition, we note that the World Trade Organisation has ruled in favour of Indonesia with regard to anti-dumping duties imposed on its biodiesel exports to the EU. This is in contrast to 2Q17, when Wilmar was facing waning demand for biodiesel. Hence, we believe downstream margins could widen y-o-y, as well.

Satisfactory year for oilseeds and grains.

  • Management expects its crushing business to do better sequentially. In spite of the volatility in soybean prices caused by US-China trade tensions, CEO Mr Kuok Khoon Hong seems fairly confident on the prospects of the crushing business this year. 
  • As we are still in the summer season, the group is currently buying from South American sources. Hence, even if a tariff on soybeans is implemented over the next month, the group is not likely to be affected in the near term.
  • The utilisation rate of the crushing segment remains high, ie above 80% in 2Q18.

Expect a one-off profit increase in sugar

  • We expect a one-off profit increase in sugar as a result of the timing effect from the new Australian sugar marketing programme. Under this programme, sales in 2H17 were weaker, as a proportion of sugar sales was supposed to be deferred to 1H18. 
  • Since there was no significant boost in sugar sales volumes in 1Q18, we expect the deferred volume to be realised in 2Q18.

Do not be frightened by the y-o-y decline in 1Q18; reiterate BUY.

  • We think the retracement of Wilmar’s share price presents a good buying opportunity for investors. 
  • As such, we also adjust our earnings estimates and raise our Target Price to SGD3.59 from SGD3.45, implying a 14% upside from current levels.

Juliana Cai CFA RHB Invest | https://www.rhbinvest.com.sg/ 2018-05-14
SGX Stock Analyst Report BUY Maintain BUY 3.59 Up 3.450