Wilmar International - UOB Kay Hian 2018-08-14: 2Q18 Strong Set Of Results

Wilmar International - UOB Kay Hian Research 2018-08-14: 2Q18 Strong Set Of Results WILMAR INTERNATIONAL LIMITED SGX:F34

Wilmar International - 2Q18 Strong Set Of Results

  • Wilmar reported its strongest 2Q performance since 2011 in 2Q18 with a core net profit of US$352m. Results were above our expectations as the tropical oils and oilseeds & grains divisions’ margins were stronger than expected.
  • The better q-o-q and y-o-y PBT was supported by better crushing volumes and higher crushing margin.
  • We may adjust our earnings forecasts post-briefing to take into account contributions from Renuka Sugar after Wilmar increases its stake to 58.34%.
  • Maintain BUY and target price of S$3.90.




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2Q18 RESULTS


Core net profit surged qoq and yoy, above expectations.

  • Wilmar International (Wilmar) reported a core net profit of US$352m (+92% q-o-q, > 100% y-o-y). Even though its sugar segment was still in red, Wilmar’s 2Q18 results were better than we had expected, largely due to:
    1. a better-than-expected margin from the tropical oils division, driven by better margins from value-added downstream products such as oleochemicals; and
    2. higher-than-expected oilseeds & grains manufacturing sales volume as well as a better margin.

Revenue weaker q-o-q, improved marginally y-o-y.

  • The weaker q-o-q revenue for 2Q18 was mainly due to lower sales volumes from the tropical oils division and consumer products subdivision. The marginal y-o-y improvement was thanks to better sales volumes from the oilseeds & grains division. 
  • For 1H18, revenue increased 3.8% y-o-y on the back of higher sales volumes from the oilseeds & grains division.

Interim dividend.

  • Wilmar has proposed an interim tax exempt (one-tier) dividend of S$0.035 per share (1H17: S$0.03). The proposed dividend will be payable on 31 Aug 18.


STOCK IMPACT


Tropical oils: Better profit q-o-q and y-o-y.

  • We were expecting this segment to improve q-o-q and y-o-y, but PBT came in above our expectation due to a stronger-than-expected margin. PBT increased q-o-q and y-o-y due to a better performance from the midstream and downstream businesses. 
  • Refining margin improved on a higher utilisation on the back of higher CPO production. Moreover, the higher crude oil prices benefitted the oleochemical and biodiesel businesses.

Oilseeds & grains: Better-than-expected margins.

  • The division posted better-than-expected results, mainly due to better-than-expected soybean crushing volumes and a higher margin. Soybean crushing’s margin expansion was due to the US-China trade war which led to an increase in soybean meal prices. The higher soybean meal prices were reflected in the 2Q18 results. 
  • Meanwhile, consumer product sales volume was within our expectations. PBT increased 68.2% q-o-q, mainly due to a better margin despite lower consumer product sales volumes. 
  • On a y-o-y basis, PBT registered a more than four-fold increase thanks to higher crushing volumes, good crushing margins and a healthy performance from the consumer products business.

Sugar: Widened losses q-o-q.

  • This segment’s performance was below expectations. We were expecting the sugar division to register a profit in 2Q18. This is because we were anticipating an increase in sales volumes for the sugar milling business in 2Q18, arising from the new sugar marketing programme introduced in 2017. 
  • The smaller loss y-o-y was mainly due to an improved performance from the merchandising & processing business.


EARNINGS REVISION/RISK


Potential cut to our earnings forecasts.

  • We are maintaining our 2018-20 net profit forecasts for now. We will adjust our earnings forecasts post the 2Q18 results briefing. The adjustment will take into account contributions from Renuka Sugar after Wilmar increases its stake to 58.34% (from 38.57%). Renuka’s financial performance had been lacklustre due mainly to high interest expenses and low sugar milling and refining margins. PATAMI adjustment to account for higher stakes in Renuka is likely to be in the range of -5% to -6%.


VALUATION/RECOMMENDATION


Maintain BUY and target price of S$3.90.

  • This translates into 14.5x 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.


SHARE PRICE CATALYST

  • Potential listing of its China operations.
  • Strong recovery of soft commodities prices.





Leow Huay Chuen UOB Kay Hian Research | Ooi Mong Huey UOB Kay Hian | https://research.uobkayhian.com/ 2018-08-14
SGX Stock Analyst Report BUY Maintain BUY 3.900 Same 3.900



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