Wilmar International - CGS-CIMB Research 2019-02-21: Strong 4Q18 Core Earnings Despite Challenges


Wilmar International - Strong 4Q18 Core Earnings Despite Challenges

  • Final core net profit was above our and consensus’ expectations.
  • However, Wilmar International warned that 1Q19 soybean crush margin may be lower.
  • Maintain ADD but with lower SOP-based target price of S$3.96/share.

Final core net profit above expectations

  • WILMAR INTERNATIONAL LIMITED (SGX:F34) posted a 15% y-o-y decline in its 4Q18 core net profit (excluding non-operating item) to US$337m due to weaker oilseeds and grains contribution. However, reported net profit in 4Q fell 53% y-o-y as it made a provision for impairment totaling US$138.6m on its goodwill and sugar milling assets in Australia.
  • Final core net profit grew 25% to US$1.3bn in FY18 due to strong contributions from key oilseeds and grain as well as associates earnings, and was 18% and 8% above our and consensus projections, respectively.

Key surprises in 4Q vs. our expectations

  • The oilseeds and grains segment performed better than expected as we had forecasted a lower crush margin in view of the outbreak of African swine fever. We were pleasantly surprised by strong showings from its tropical oils division in 4Q18, despite lower palm products prices during the quarter as processing margins did better.
  • Wilmar International's associates and joint ventures also delivered better-than-expected 4Q18 results thanks to stronger profit contributions from China, Europe and Vietnam.
  • Final dividend of S$0.07 was declared bringing full-year dividend to S$0.105, which was above our projection of S$0.09/share.

Record profit from oilseeds and grains despite challenges

  • The oilseeds and grains division posted a 20% rise in pretax profit to US$875m thanks to higher crush margins and better performance from consumer products. This is a strong achievement in view of the tough operating environment faced in 2018.
  • The tropical oils segment posted a 37% rise in final pretax profit to US$546m as the better processing margin more than offset lower CPO prices.

Outlook for 2019

  • Wilmar International expects its tropical oil division to do well in 2019 in view of the recent recovery in CPO prices and satisfactory margins in downstream processing. However, it indicated that 1Q19 crush margins will be adversely impacted by the sharp decline in meal demand from the outbreak of African swine fever in China and sharp drop in Brazilian soybean basis, but the group expects this to improve 2Q19.

Maintain Add due to attractive valuations and plans to unlock value

  • We cut our earnings forecasts by 2-3% for FY19-20F to reflect lower crush margins and reduce our SOP-target price to S$3.96 per share after imputing impairment for its sugar assets.
  • We continue to favour Wilmar International for its attractive valuations and proposed plan to list its China operations.
  • The stock currently trades at a forward P/E of 13x and P/BV of 0.96x.
  • Key risks to our view are lower-than-expected crush and refining margins, as well as lower CPO and sugar prices.

Ivy NG Lee Fang CFA CGS-CIMB Research | https://research.itradecimb.com/ 2019-02-21
SGX Stock Analyst Report ADD MAINTAIN ADD 3.96 DOWN 4.100