Wilmar - OCBC Investment 2018-08-14: Crushing It In 2Q

Wilmar - OCBC Investment Research 2018-08-14: Crushing It In 2q WILMAR INTERNATIONAL LIMITED SGX:F34

Wilmar - Crushing It In 2q

  • Better oilseeds crushing margins.
  • To sustain in 3Q.
  • Higher interim div of 3.5 S cts.

2Q18 boosted by oilseeds and grains, associates

  • Wilmar registered a 1.9% y-o-y rise in revenue to US$10.8b but saw a 436.6% increase in net profit to US$316.4m in 2Q18, bringing 1H18 net profit to US$516.7m (+29.6% y-o-y). 1H18 earnings accounted for about 46% of our full year estimates, in line with expectations.
  • Oilseeds and grains saw the greatest increase in pre-tax profit (US$463m) at 72.7% in 1H18, followed by associates’ contributions (US$89m) at 52.1%. Oilseeds and grains saw higher crushing volumes and margins, and a good performance from the Consumer Products business.
  • The Tropical Oils segment benefitted from better performance from the midstream and downstream businesses – while higher crude oil prices supported the Oleochemicals and Biodiesel businesses, the Specialty Fats segment also contributed positively due to higher global demand in 2Q18.
  • Production yield improved 11.1% to 5.8 MT per ha in 2Q18 with more favourable weather conditions.

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Monitoring US-China trade tensions

  • US-China trade tensions improved crush margins in the short term with lower soybean prices, thus benefitting Wilmar’s oilseeds crushing business. The improved margins should sustain in 3Q, but the outlook for 4Q is unclear for now.
  • A prolonged dispute will have a negative impact on the crush margins due to lower plant utilisation, and this is likely what the market will monitor in the upcoming months.
  • Nevertheless, management expects its other businesses such as consumer products, rice and flour milling to “perform reasonably well” in the coming quarters. While sustained low palm oil prices will affect the plantation business, Wilmar expects that its downstream businesses will benefit from increased demand and better margins for its products.
  • Sugar performance should also improve in 2H18, with the commencement of crushing season in Jun.

Higher interim div of 3.5 S cts; final may be higher too

  • An interim dividend of S$0.035 has been declared, vs. S$0.03 last year, and we expect the final dividend to be slightly higher than last year’s S$0.07, barring unforeseen circumstances.
  • We maintain our fair value estimate of S$3.51 on the stock.

Low Pei Han CFA OCBC Investment Research | https://www.iocbc.com/ 2018-08-14
SGX Stock Analyst Report BUY Maintain BUY 3.510 Same 3.510