Wilmar International - CGS-CIMB Research 2018-11-12: Strong 3Q Results Despite Us-China Trade Row


Wilmar International - Strong 3Q Results Despite Us-China Trade Row

  • Wilmar posted a strong 3Q core net profit, which we deem to be above expectations due mainly to better-than-expected oilseeds and grains profit.
  • The tropical oils division also posted better earnings as higher downstream processing margins more than offset the weaker palm products prices.
  • Maintain ADD with SOP-based target price of S$4.10/share, due to its strong results, attractive valuations and plans to list its China operations.

Strong 3Q results above expectations

  • Wilmar recorded a 23% q-o-q increase in its 3Q18 core net profit to US$435m. This helped to boost its 9M18 core net profit by 49% y-o-y to US$970m. 9M18 core net profit formed 88% of our and 84% of consensus’ full-year forecasts.
  • We consider this to be above expectations due to the stronger-than-expected results from its oilseeds and grains division.
  • Wilmar’s 9M core net profit has over the past five years accounted for 40-73% of its full-year core earnings (average at 60%).

Best 3Q core net profit achievement since 2014

  • We are pleasantly surprise by the continued sequential improvement in showings from its tropical oils and oilseeds and grains segments despite lower palm products prices and higher import tariffs on US soybeans by China during the quarter. This, coupled with higher profit from its sugar division and associates, led to the 27% y-o-y improvement in its 3Q18 core net profit.

Oilseeds and grains did well despite US-China trade tensions

  • The oilseeds and grains division was the largest earnings growth driver in 9M18 thanks to higher crush margins and better performance from consumer products. This division posted a 17%/46% increase in PBT in 3Q18/9M18 despite concerns over US-China trade tensions.

Stronger processing margins trumped lower CPO prices

  • The tropical oils segment (plantations and palm oil processing) posted a 88%/88% rise in 8Q88/8M88 pretax profit to US$888m/US$888m as the better processing margin more than offset lower CPO prices.
  • The sugar division posted a 8% rise in profit, as stronger merchandising profit offset losses from newly-acquired subsidiary, Shree Renuka.

Reaping returns from past investments

  • Wilmar attributed the strong set of results to its past investments in new plants in China, Indonesia and India and is cautiously optimistic that performance for the rest of the year will be satisfactory.
  • We are keeping to our earnings forecasts pending an update with the group at its quarterly briefing with analysts.
  • We continue to favour Wilmar for its attractive valuations and proposed plan to list its China operations. The stock currently trades at a forward P/E of 88x and P/BV of 8.88x.
  • Key risk to our view is lower-than-expected crush and refining margins, as well as lower CPO and sugar prices.
  • Maintain ADD and SOP-based target price of S$8.88.

Ivy NG Lee Fang CFA CGS-CIMB Research | https://research.itradecimb.com/ 2018-11-12
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